News MBIE: New Retention Money Requirements

This article contains details on the new retention money requirements introduced in October 2023. You can read more about the new requirements on the Ministry of Business, Innovation and Employment’s (MBIE’s) Building Performance website.

By Laura Lumley, Building System Performance, Ministry of Business, Innovation and Employment

New requirements to protect subcontractors who have retention money withheld from them commenced on 5 October 2023.

The new retention money requirements have now been in force for about four months. They strengthen the retention money regime by making it easier for subcontractors to access retention money without a court order, should a head contractor become insolvent.
The new requirements apply to new commercial construction contracts signed on, or after, 5 October 2023 and existing commercial construction contracts renewed on, or after, that date.  

New requirements for head contractors 
If a head contractor chooses to include retentions within the construction contract and withholds retention money, they must comply with the new requirements. These include: 

• clarifying that retention money is automatically held on trust by the head contractor once the contract allows it to be withheld from the subcontractor
• ensuring that retention money held as cash is also held separately in a bank account with prescribed ledger accounts
• using retention money only to rectify non-performance of subcontractors' obligations under the contracts – if retention money is used to remedy those defects, subcontractors must be given ten working days' notice
• providing quarterly reports to each subcontractor retention money is withheld from
• providing each subcontractor with a report after each transaction with their retention money, promptly and free of charge
• paying out retention money when it's owed.

There are now liability offences for failing to hold retention money properly, with penalties of up to $50,000 for a director and up to $200,000 for a company.

Obligations as a liquidator or receiver 
As a liquidator or receiver appointed to a company, you are required to comply with the following requirements:

• If you take over a contractor or principal's retention money during the receivership/liquidation process, you become “party A” and have all the same responsibilities as the contractor or principal.
• As party A, you must follow the reporting requirements.
• You cannot use retention money held on trust to pay out creditors or other outstanding debts.
• You may only deduct your fees from the retention fund for work related to the administration of retention money. 

Where to go for further information
You can read more about the new requirements on the Ministry of Business, Innovation and Employment’s (MBIE’s) Building Performance website. The following resources to further support your understanding are also available:  

• A detailed guidance document.
• The recording of a webinar held by MBIE, which includes a question-and-answer session.
• Examples for each type of reporting requirement. 

Retention money requirements under the Construction Contracts Act 2002 – Building Performance
Resources to support compliance with the requirements – Building Performance

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