Green Party MP Julie Anne Genter described the law change as a win for builders. Photo / Getty Images
Green Party MP Julie Anne Genter described the law change as a win for builders. Photo / Getty Images
Sub-contractors in the construction industry will still be able to get paid in the event of a Mainzeal-like collapse under a bill which passed into law this afternoon.
The Government moved to close a gap in the law after the large construction company failed in 2013, owing $18 million tohundreds of sub-contractors.
Property developers would now be required to hold "retention payments" on trust, which would ensure that workers were paid even if a project failed.
Building and Construction Minister Nick Smith said the management of risk in the building sector had favoured developers and main contractors at the expense of small businesses which did the bulk of construction work.
Dr Smith said Mainzeal Property and Construction's collapse illustrated the need for a law change.
"The losses were of a scale that it caused huge pain for hundreds of small and medium-sized businesses across New Zealand, and also resulted in some of them failing as a consequence of those payments not made."
Under the changes, a developer or principal contractor would have a "trust obligation" to put aside retention payments, usually worth 10 per cent of a project. The legislation would not require them to put the money in a separate bank account or a lawyer's trust. The trust obligation would end when the retentions were paid out in full or were used to fix defective work, and the law change included penalties if the funds were wrongly used. Labour and Greens said the change was overdue, and that the Government should have acted before a big company failed.
The legislation originally did not include the provision for retention payments. But after a number of submitters raised it during the select committee process, an amendment was later added by Dr Smith.
Labour MP Clayton Cosgrove said the amendment amounted to a U-turn by the Government because former Building and Construction Minister Maurice Williamson had not expressed an interest in improving sub-contractors' rights after Mainzeal's failure.
Green Party MP Julie Anne Genter described the law change as a win for builders.
"I'm really pleased to see the Government has finally listened to the building industry ... because for a long time it didn't look likely."
The measure was part of the Construction Contracts Amendment Bill, which was backed unanimously in Parliament this afternoon.
The bill would also clarify that people involved in both commercial and residential contracts could get equal access to dispute resolution services. It was previously unclear how the services in the Construction Contracts Act applied to residential contracts.
The scope of the Act would also be widened to include construction services such as architects and surveyors.
