Subcontractors want law change on losses

ALAN WOOD
Last updated 05:00 05/03/2014

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The Government is not making any promises as to when legislative changes might occur to help protect subcontractors, such as those hurt in the Mainzeal collapse a year ago.

The Crown came under fire for dragging its heels on legislating to help safeguard subcontractors in terms of work done for a developer or company that then collapses.

Graham Burke, president of the Specialist Trades Contractors Federation (STCF), said the Government had failed to introduce urgent changes to the practice of construction firms withholding payments or retentions from contractors working on projects.

"It is now 12 months since Mainzeal collapsed, leading to around $70 million in losses for many sub-contractors across New Zealand - ranging from plumbers and electricians to steel fabricators and scaffolders. The time for talking is over.

"At least $20m of those losses, hitting countless small businesses, was due to the retention system."

The retention system allowed the main contractor - such as Mainzeal - to hold up to 10 per cent of the sum due to a contractor, interest-free, for up to two years as a guarantee of the quality of the work, he said.

Burke said the STCF had been pressing the Government to legislate to ensure the retention was held in trust for the subcontractor. Alternatively, sub-contractors could be given an option of providing a bond as a guarantee instead of the main contractor holding on to 10 per cent of the sum owed to them.

A spokesman for Building and Construction Minister Maurice Williamson said the STCF was one of a number of groups that had made submissions on the need for reform around contracting.

The Ministry of Business, Innovation, and Employment had been looking at those suggestions since they started flowing in about a year ago, the spokesman said.

The ministry was working on "coming up with some sort of solution".

Asked if there was a timeline for that work by the ministry to be completed, he said: "Not as yet, but it is hoped that potentially there could be a supplementary order paper, that there is a solution that can be found that is viable, that could be added to the Construction Contracts Act which is currently before Parliament."

STCF's Burke said following initial talks with Williamson the federation had been talking with the ministry but that conversation was dragging on.

There was still to be further consultation with the ministry in late March or April.

Jeremy Sole, the chief executive of the New Zealand Contractors Federation, said his group was looking to challenge legal rulings which backed a liquidators' power to claw back payments made by an insolvent company or developer to a contractor up to two years before its collapse.

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The liquidator would then put the money back into a pool for distribution to all creditors.

The contractor should, in the federation's view, receive payment for work done without the danger of it being clawed back, he said.

- BusinessDay

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