The New CCA Retention Regime???? - The Construction Contracts (Retention Money) Amendment Act 2023 – What you need to know.

The Construction Contracts (Retention Money) Amendment Act 2023 ???? officially came into effect on the 5th of October 2023, ushering in a series of stricter regulations that impact retentions held under commercial construction contracts initiated from that date onward.

The primary aim of these new rules is to fortify the safeguards available to contractors and subcontractors, ensuring that funds rightfully owed to them for work completed under a contract are not unduly withheld as security for their continued performance on the same contract. ????♂????

Here's a concise overview of the key provisions introduced by the new retention rules:

1. Segregation of Cash Retentions: Retentions withheld as cash payments must be placed in a separate bank account, distinct from other operational funds of the entity withholding the money. In cases where an account holds retentions for multiple contracts, specific ledgers must be maintained for each individual contract. ??????
2. Trust Account Requirement: The bank account used for holding retention funds must function as a trust account to enhance transparency and safeguard these funds. ??
3. Alternative Instruments: If cash isn't used for retentions, a "complying instrument," such as a bond, can be established to represent the value of the retentions. ????
4. Specific Use of Retention Money: Parties holding retention funds can only use these funds for rectifying non-performance issues, such as addressing defects in the contracted works. ?????
5. Reporting Obligations: The entity withholding retentions must provide quarterly reports to contractors or subcontractors whose funds are retained. Additionally, written reports must be promptly furnished after each retention money transaction under a contract. Detailed reporting requirements are specified in the Amendment Act. ?????
6. Access to Accounting Details: Contractors or subcontractors whose funds are held as retentions have the right to request accounting details of these funds at any time, free of charge. ??????
7. Interest on Late Payments: In case retention money isn't disbursed as per the due date, the party owed the funds is entitled to receive interest. ????
8. Protection in Receivership or Liquidation: The Amendment Act ensures that, in the event of receivership or liquidation of the entity holding retention funds, these funds remain protected and available for the benefit of the contractor or subcontractor. ?????
9. Enforcement by MBIE: The chief executive of MBIE (Ministry of Business, Innovation, and Employment) may enforce the obligations of parties retaining funds. ??♂????
10. Prohibited Contract Provisions: Certain provisions in contracts, including attempts to circumvent compliance with the new rules, are prohibited. ????
11. Strict Liability Offenses: The Amendment Act introduces strict liability offenses for failing to adhere to the retention money requirements, with penalties of up to $50,000 for directors and up to $200,000 for companies. ??????
12. Record-Keeping Obligations: Parties holding retentions must adhere to detailed record-keeping requirements outlined in the Amendment Act. ?????

It is crucial for entities subject to these obligations, particularly their directors, and those from whom retentions are withheld, to acquaint themselves with these new regulations to ensure compliance and avoid potential penalties. ????

Please see the guidance document or contact me if you need any further information.