Business smarts RETENTION PAYMENTS
Reviewing the retentions regime Following an independent KPMG review into the retentions regime, the Ministry of Business, Innovation and Employment (MBIE) says more work needs to be done this year to ensure subcontractors are fully protected. Plumbing industry business owners were among those to be surveyed for a recent KPMG survey on retention money provisions, commissioned by MBIE. The survey report, published by KPMG last December, showed that, whilst most of the sector is complying with retention payment requirements in the Construction Contracts Act, subcontractors are still not sufficiently protected in the event of a major construction company collapse. “The report findings raise some concerns around enforceable penalties, co-mingling retention monies, and a lack of guidance for construction firms,” said MBIE general manager, building system performance Anna Butler. “More work is required to ensure subcontractors are protected across the board. Ensuring our builders, plumbers, electricians and other tradies are protected in the unfortunate event of construction firm insolvency remains a top priority.” Anna Butler noted that Building and Construction Minister Jenny Salesa expected to make more announcements this year about what this work will entail. “Government and construction industry leaders are working together through the Construction Accord Transformation Plan to tackle the long-term issues in the sector, including better risk management and fairer risk allocation,” she said.
Compliance issues The survey found that 27% of respondents who hold retentions had faced difficulties complying with the retention regime at some point. The main reasons included lack of available funds, insufficient information on how to comply,
no available insurance policy or financial instrument, a lack of knowledge of the legislation and the impression that there was little compliance. Master Plumbers CEO Greg Wallace said it was also disappointing to see from the report that some head contractors were responding defensively (or not at all) to subcontractor requests to inspect accounting records for their retention payments, which illustrate the potential inadequacy of some to comply with the legislation. “Master Plumbers is advocating with MBIE for strong penalties for directors that don’t comply, as we believe this is the only way to ensure compliance,” he said.
Ensuring our tradies are protected remains a top priority. - Anna Butler, MBIE Find out more Read the full KPMG report here: https:// www.building.govt.nz/projects-andconsents/why-contracts-are-valuable/ construction-contracts-act-2002/#jumptoreview-of-retention-money-regime
Report recommendations Based on the report findings, KPMG makes four recommendations to MBIE: 1. To improve awareness—more guidance for payees on what records to request for inspection 2. To improve compliance—more guidance for payers on how to comply with the Act, including what constitutes a liquid asset and a complying financial instrument, best practice guidelines on record keeping and financial processes to manage the retention fund, and information about the consequences of non-compliance 3. To continue to encourage positive behaviour—encouraging the industry and business leaders in endorsing positive behaviour towards compliance in place and encouraging behaviour that maintains ongoing compliance 4. To address early impacts—giving more consideration to how to address operational issues concerning how retention money held by a firm is administered in the case of insolvency of the firm.
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