Weng Tan White Associates

Older and Wiser: Weng Tan Reflects on Ten Years at White Associates

Weng’s love of collaboration means he is always learning something new.

“How many decades do you have in your life? Use it wisely.” 

 

That’s the advice that Weng Tan would give to himself back in December 2013, when he first landed in New Zealand for his new job at White Associates. He has used this decade well, developing from a Quantity Surveyor in 2013 to a Senior Quantity Surveyor and last year to Associate level in our Post Contract team. 

 

Weng has seen the Construction market change significantly over the last ten years. “The market has changed from a very manageable workload to a very high demand workload, and I have loved seeing organisations like MATES in Construction created to look after those in these high-pressure environments. Everyone wants a very quick turnaround. Pricing is getting more competitive; you can see this in the shortage of materials during and post-Covid. Materials aren’t an issue anymore, but the next challenge ahead is how to service high levels of construction activity with a small pool of local talent.” 

 

The demographics of Construction workers have also changed. “There are now a diverse mix of nationalities in the New Zealand Construction industry,” says Weng. “This affects the way that people work and run Construction businesses, as there will be different expectations. For example, different countries move at different speeds and foreign clients may expect shorter timeframes.” 

 

“I’m also glad to see the number of women in construction increasing. Construction is no longer such a male dominated industry. I have noticed that NAWIC [National Association of Women in Construction] are growing quickly, they now have more activities and are quite active on social media. When I joined White Associates, we only had two or three ladies in our team, and now half our staff are women. That is very impressive.” 

 

As part of our Post Contract team, Weng has been exposed to many different industries. “Each project has different challenges, uses different construction methodologies, has different project teams and project expectations,” Weng says. 

 

“There are a few projects I’m especially proud of: The Douglas Pharmaceuticals Innovation Centre, Woolworths’ Palmerston North Distribution Centre, a project in Mount Eden, Ryburn Road Townhouses, and Nugent Street Apartments. The common thread in these projects is that they were collaborative. I’ve learnt that the recipe to project success is a combination of teamwork, effort and knowledge.” 

 

Director Brett Zeiler works closely with Weng on Post Contract projects and has seen his impact firsthand. “My first job at White Associates was the Mount Eden project. I saw how effortlessly Weng slotted into the project team and how efficiently he ran the project. He has made a great reputation for himself within the industry; our repeat clients often ask for him to be assigned to their projects,” Brett says. 

 

What Weng enjoys most about working at White Associates is the people. “I love the collaboration and teamwork, everyone helps each other,” says Weng. “I share my workload with the other Post Contract Associates, and the Directors are always available to assist. There’s been times where I’ve lost my direction in a project, and [Directors] Justin and Brett gave me the advice and support I needed to reset and carry on. 

 

“Most of the time we think that people that are older are wiser. That’s true, but we learn a lot from young people too. The world is continuously evolving, and technology is always improving. When I first arrived at White Associates I brought my own scaler, it’s now sitting at the back of my drawer. Our Juniors are skilled in CostX, they can look for files quicker and navigate our online systems easier. Do not stop learning and treat every day as a new day.”  

 

The next ten years will bring new adventures for Weng. I would like to enhance my skills and broaden my horizons,” he says. “In order to step out of my comfort zone and explore different things, I have made the hard decision to leave White Associates in the new year. However, that doesn’t mean my relationship with the company will end. I look forward to improving myself in new ways within the Construction industry.” 

 

White Associates congratulates Weng on his decade of service. “On behalf of all the directors and the whole team, we want to say a massive thank you to Weng for all his hard work,” says Brett. “It’s been a privilege to have worked alongside and learned from him over the last ten years.” 

 

This article was contributed by Gemma Christall, Weng Tan and Brett Zeiler. 

Douglas Innovation Centre

Under the Microscope: An Advanced Future for Douglas Pharmaceuticals

The new Douglas Innovation Centre adds significant research and development capacity to Douglas Pharmaceuticals.

If you’re looking for evidence of New Zealand as a hub for advanced technology, you need to look no further than the $50 million Douglas Innovation Centre in West Auckland, a state-of-the-art pharmaceutical research and development (R&D) facility created by Douglas Pharmaceuticals. The facility is the largest of its kind in New Zealand, and sits castle-like at the top of a hill in Henderson. 

 

Opened in September 2022 after an 18-month construction period, the Douglas Innovation Centre uses world-class research to find solutions for a range of serious illnesses. The three-storey, 4,500m2 facility includes multiple laboratories, purpose-built rooms for commercial manufacturing, pilot scale product development suites, open office space, cafeteria, meeting facilities and a GMP warehouse. In recognition of its innovative design, which includes a skybridge connection to Douglas Pharmaceuticals’ existing head office, the Douglas Innovation Centre was recently awarded an Excellence Industrial Property Award at the 2023 PCNZ Property Industry Awards. 

 

White Associates was involved in the creation of the new facility, utilising a senior team comprising of Directors Justin Maritz and Brett Zeiler, and Associates Weng Tan, Elliot Smith and Richard Moore-Savage. The White Associates team provided a full range of Quantity Surveying services from Pre Contract feasibility estimates through to Procurement/Tender cost analysis and Post Contract cost management.  

 

Weng Tan says that what really stands out about the project is its complex and evolving nature. “The Douglas Innovation Centre was a significant extension of Douglas Pharmaceuticals’ existing warehouse, laboratory and office facilities, and laboratory facilities are technically sophisticated and mechanically intensive structures. Hermetic doors and windows were required for its multiple clean spaces, and the pressurisation of rooms required careful attention to detail to ensure no surfaces presented a hygiene risk.  It also required various types of reticulated gases, compressed air and vacuums throughout. The surrounding buildings remained fully occupied and operational throughout construction, which created logistical challenges included limited access to the laboratory building.”

 

The goals for the end-user experience evolved throughout the project, and the design had to adapt quickly so the Contractor could complete upgrades while they were still on site. “From a cost consultancy perspective, in addition to the routine construction cost control and monitoring we worked closely with the client’s accounting team. We ensured the payments were facilitated correctly and accordingly from the designated accounts,” says Weng. 

 

“Reliable, consistent communication was crucial in this project. Our job was to be clear and transparent about cost throughout the process. We added value by working closely with Douglas Pharmaceuticals, the Contractor, Project Management and consulting teams to provide quick, sound advice on costs. This in turn enabled Douglas to make informed decisions to ensure continuity of works for the contractor whilst working toward project budgets. We also kept close to the Mechanical and Electrical (M&E) Engineer and Contractor throughout the project to understand all changes as they arose, making forecasts and notifying the design team and client.”

 

Despite additional scope being added to the project, it achieved completion on time. “We were able to progress swiftly and close the final account with no dispute,” Weng says. “The client is extremely happy with the overall outcome and the level of quality achieved.” 

 

This article was contributed by Weng Tan and Gemma Christall.

White Associates Directors

Graham White to retire as White Associates goes from strength to strength

Graham will retire at the end of November, leaving behind a strong management team and a company that continues to grow.

No one would ever describe Graham White as a shy and retiring sort of person. However, it is nonetheless true that after a long and highly successful career he is retiring from White Associates, the company he co-founded with Konrad Trankels back in April 2005.

 

Planned over the past three years, Graham’s retirement at the end of November comes at a time when White Associates celebrates its 18th birthday and looks ahead with confidence, in a time of growth. The business is led by Konrad with exceptional directors in place – Justin Maritz, Darin Bayer and Brett Zeiler plus a new Associate Director and a strong roster of Associates in the team for a year now. There is longevity within the leadership team, with Director Justin Maritz and Associate Weng Tan celebrating their 10-year work anniversaries this year. 

 

Structured and strong, White Associates has expanded successfully into the South Island from its Auckland base, establishing a flourishing office in Queenstown led by Elliott Smith which is now in its fourth year. White Associates’ service offerings now span four thriving departments: Pre Contract, Post Contract, Funding Representation and Advisory Services. 

 

The track towards this level of success was laid in the very first days of the firm, when the immediate priority was to win work in the right way, says Graham. “Konrad and I always said from Day 1 ‘we’re not going to do it the old way’. We determined to do what we thought was right, and this has always been the litmus test for everything that has followed. 

 

“We have grown over the years thanks to meeting great people along the way: brilliant clients and people who have worked in our team. The relationships and teams we have forged along the way, as well as the projects we have been fortunate enough to work on, have been the defining feature of my working life, and I will never forget them.” 

 

Graham adds that over the years he has realised that White Associates is great at doing its job, and that it doesn’t need to go beyond that. “We have learned to focus on what we are great at, so we have spent considerable time and resource in creating processes and people in place to be truly effective as a QS firm. White Associates has improved hugely over recent years, growing in a sustainable and structured way while reclaiming its core value of ‘doing it right’. Truly we’re going from strength to strength.” 

 

Appointed an NZIQS Life Member in December 2019, Graham says that as White Associates reaches its 18th birthday now is the right time to go. “This is my baby; it is a big thing for me to leave, but it is the right time, something we have planned for the last three years. I’m ready to move on to the next chapter of my life, and it is good for the directors to grow as a team. It is good for the company as well: a refresh, time to grow with our leaders in place. 

 

“I am leaving White Associates in brilliant shape. Konrad has been running the company for years, and I am truly in awe of our team. The structure is in place for White Associates to succeed into the future, with our technical teams focusing on getting the job done in the best way for our clients and our staff, and Konrad at the helm ensuring all facets are aligned to the White Associates’ vision.” 

 

That said, he also says that he plans to keep in touch for years to come. “I will continue to meet regularly with Konrad to be a sounding board, to help him and hear what’s going on. I want to hear great things about White Associates when I bump into people. I know I will.” 

 

We know that Graham has formed many great relationships and made many friends along the way. If you have any messages you’d like to send him, please click HERE:  

Retentions Money Regime White Associates

A Practical Guide to the new CCA Retentions Regime – how will it affect me?

In this article we highlight the implications for Financiers, Principals, Developers, Contractors and Subcontractors.

The Construction Contracts (Retentions Money) Amendment Act 2023 (“CCA”) comes into force next week on 5 October 2023, and with it, a myriad of changes affecting the way in which retentions should be held and managed on commercial construction contracts [1].  It will apply to contracts entered into after this date, and contracts entered into before this date and renewed thereafter.

This is the second article in our series in which we shed light on the new regulations and how they impact you.  Whether you are a Principal, Contractor, Subcontractor, Developer or Financier; whether you hold retentions, or retentions are withheld from you; this guide aims to highlight the most important changes to the Act, and practical steps you can take to help you meet your obligations and avoid the pitfalls of the revised CCA regime.

 

Parties A and Parties B – which one am I?

The rule of thumb is that Party A holds retentions and Party B has retentions withheld from them.

Therefore, if you are a main contractor, you will be both Party B – in respect of the head construction contact, and Party A in respect of any sub-contract retentions.

 

If you are a:

  • Principal
  • Developer
  • Head Contractor (holding retentions for a Subcontractor)

You are Party A.

  • To withhold a portion of money from Party B in each progress payment claim (assuming this is permitted by the specific contract) [2].

 

  • To utilise retention monies to rectify defects and/or non-performance by Party B – if necessary and once the necessary preconditions have been met.

 

  • To keep any interest earned on retention monies.

 

[2] However, the retention regime will apply even where money is withheld as security for the performance of contractual obligations, even where the contract does not allow retention money to be withheld.  A Principal’s deduction, or funds held by a 3rd party in escrow, are both considered retention monies.

You must:

  • Keep retention monies separate.
    • They are held on trust and cannot be mixed with any other funds. However, you can hold retentions from multiple different projects and parties in the same account [3].

 

  • Report on retention monies regularly.
    • A retention report must be provided to Party B after every retention money transaction, every 3 months minimum thereafter, and upon reasonable request [4].
    • The report must include:
      • The bank name, branch, account name and number.
      • The total amount of retentions held on behalf of that Party B.
      • The contract(s) to which the retentions relate.
      • Date(s) and time(s) of any transactions.
      • A statement that Party B may inspect the retention accounts and records.

 

  • Release retention monies – this should occur once Party B has completed its contractual obligations. The due date for the payment of retentions cannot be later than date of completion of contract obligations.

 

  • Use retention monies – to remedy defects as long as:
    • Use of the retentions for that purpose is permitted under the contract.
    • The relevant contractual provisions are complied with.
    • At least 10 working days’ notice is given to Party B of its non-performance and Party A’s intention to use retentions, prior to using the retentions.

 

[3] A trust is automatically formed as soon as monies are withheld.  The retentions are trust property.  Party A is the trustee, and Party B is the beneficiary.

[4] Full and complete accounts / records must be kept, the cost of which is not recoverable by Party A.

  • Educate directors and staff – to ensure everyone understands the roles and responsibilities, from directors to administrators.

 

  • Ensure that effective internal accounting policies and procedures are in place – directors have a legal duty to ensure their companies are abiding by the retention money regime.

 

  • Open a dedicated “Retentions” bank account – for the sole purpose of holding retentions.

 

  • Develop a naming protocol – A simple coding system will ensure you can quickly and easily identify each project, retention type value and entity, and report on it to the relevant Party B.

 

  • Update your monthly payment schedule / certificate template – This will simplify the reporting process by including retention money reporting in a standardised format.

 

  • Contractual – Ensure that contractual provisions including relevant notice requirements are adhered to. Terms making payment of retentions, or due date for payment, conditional on anything but Party B’s performance of its contract obligations are ‘prohibited provisions’.
  • Retention monies are held on trust – It is not your money, and you must not mix it with money in your own accounts and/or use it in any way.

 

  • Retentions monies must not be used as working capital.

 

  • In the event of receivership or liquidation – the receiver or liquidator will step into your shoes, automatically becoming Party A and the new trustee of the retention monies.

 

  • Non-compliance is expensive – The new Act outlines significant penalties including fines between $50,000 – $200,000 which can be enforced against both your company and individual directors.

 

  • Demonstrating compliance may become a condition of funding (banks and financiers)

 

  • Ensure that the contract entered into contains adequate procedures and criteria for dealing with retentions. Also note – a contract must not contain provisions which attempt to avoid the retention money regime.

If you are a:

  • Head Contractor (having retentions held from you by a Principal or Developer)
  • Subcontractor

You are Party B.

As Party B you are entitled to:

  • Receive regular reporting – in respect of all retention monies held by Party A on trust for you. Reporting must be in the correct format and contain all the information specified under the Act – at least once every three months and until Party A’s obligations as trustee of the retention money trust have ended. [as per Party A description above]

 

  • Make reasonable requests to inspect – Party A is obliged to show you the account(s) and records pertaining to your retention monies. [note reluctance due to commercial factors, however, this is your right]

 

  • At least 10 working days’ written notice – before Party A uses retention monies to rectify any non-performance or defect.

 

  • Be paid out retention monies – once all your contractual obligations have been completed and any other pre-conditions for release have been met. Interest is payable on late release of retentions.

 

  • Report non-compliance – The Act is administered by the Chief Executive of the Ministry of Business, Innovation and Employment (MBIE). You can raise any concerns about Party A’s compliance (or lack thereof) by emailing CCRMComplaints@mbie.govt.nz .
  • To promptly rectify any defects and non-performance in the contract works.

 

  • Monitor retention holder’s compliance with the CCA and report any breaches thereof.
  • Retentions owed but unpaid retain the status of “retention monies”. Your retentions are now protected in the event of Party A’s receivership or liquidation.  Bear in mind, this form of security associated with retentions, applies even under circumstances where amounts have been certified as debt due but not yet paid.

 

  • Ensure that the contract entered into contains adequate procedures and criteria for dealing with retentions [5].

 

[5] Section 18I – CCA (Retention Money) Act states that provisions in a contract which purport to change the conditions on which retentions are released, and/or avoid the application of this section shall be void.

If you are a Financier:

  • Make CCA compliance a condition of funding – statutory compliance, in all respects.

 

  • Ensure borrowers’ construction contracts contain appropriate retention provisions.

 

  • Make regular reasonable requests for documentation demonstrating compliance – ideally on a monthly basis, and in any event prior to any draw down of funds. Financiers should verify compliance in relation to the retentions borrowers hold for contractors as well as the retentions contractors are holding for their subcontractors.

 

  • Ensure that retention funds are not considered assets or equity and/or used as security for funding.
  • Not to include retention funds in my assessment of my client’s financial position.

 

  • Report non-compliance of retention holders.
  • Compliance with the CCA can be a condition of funding; however, financiers need to take care not to be construed as a “constructive trustee” and consequently become responsible for management or compliance with the retention monies regime. In order to avoid this situation, borrowers should draw down retention amounts progressively and not leave it to be drawn down as a lump sum when retentions are due to be paid to the contractor.

Next month we will discuss the alternative mechanisms – known as Complying Instruments – available to manage risk and performance under commercial construction contracts.

 

Further Guidance

If you require further guidance, please feel free to contact our Advisory division leads.

 

Further Resources

 

For the relevant legislation:

 

[1] This guidance does not apply to a construction contract with a residential occupier.

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.  It is current as at the date of publication only. 

 

This article was contributed by Rebecca Ward and Jesse Conradie.

Rebecca Ward Senior Advisory Consultant White Associates

Introducing Rebecca Ward, our new Senior Advisory Consultant

Rebecca brings a practical, big-picture approach to the White Associates team.

We are delighted to welcome Senior Consultant Rebecca Ward to our Advisory Division. 

 

Rebecca’s varied background in related industry roles means she has a deep understanding of how different construction stakeholders interact with each other, and what their needs are. After being admitted to the bar as a qualified lawyer, Rebecca soon began applying her legal knowledge in practical property environments including a developer, a building surveying company, and a multi-disciplinary company where she interacted with a full suite of property consultants. “Over time, I began to specialise in contract administration, supporting the project lifecycle and all the associated specialty consultants,” she says.

 

Rebecca’s ability to consider the big picture comes in handy when working on complex projects. “I like to step back from a project and take the time to understand it in its entirety, not just the portion that I’m involved in. I find this gives me a big advantage when it comes to advising on bespoke solutions and considering the best project outcomes for all. I ask a lot of questions and have learnt not to assume anything!”

 

Director Justin Maritz, who leads our Advisory Division alongside Associate Director Jesse Conradie, says Rebecca has already made a noticeable impact on projects.

“With her wealth of construction and legal expertise, Rebecca has instantly added value. Rebecca’s specialist skill set enables her to bring a different perspective to our Advisory team. As a collective, we can examine projects from a variety of angles and advise outcomes that are beneficial to all parties.”

 

In Rebecca’s view, the key to achieving these beneficial outcomes is communication. “If all stakeholders can ‘buy in’ to the project and have realistic expectations, particularly in areas such as risk allocation, then disputes can be avoided,” she says. “I enjoy helping people understand that a shared risk matrix is much more powerful than an unbalanced one. When things go wrong, everyone pays the price to a small degree but there is a shared desire to work together to find a solution – which is not always the case on projects with unbalanced risk allocation. It’s important to remember that all stakeholders have the same end goal: to deliver a successful project.”

 

If you require advice for your project, get in touch with our Advisory Division today.

 

This article was contributed by Rebecca Ward and Gemma Christall.

White Associates Director - Justin Maritz

The Next Decade of Procurement

Director Justin Maritz calls for efficient procurement strategies on his 10-year anniversary.

This month we celebrate Director Justin Maritz, our fifth employee to reach a decade of service.

 

Having initially joined White Associates as a Senior Cost Planner in 2013, Justin has been a Director for the last four years. A self-described generalist, he is currently involved in the leadership of three of our four divisions – Pre Contract, Post Contract and Advisory Services.

 

Justin has weathered his fair share of market ups and downs over the last ten years, and has seen firsthand the benefits of collaboration during the procurement process. Looking ahead to the next decade, he believes efficient procurement strategies will be key to navigating changing market conditions successfully.

 

“What I want to see in future is a well-considered competitive market. Well designed, well procured and well contracted.”

With New Zealand currently in a recession, we are seeing a shift from the previously perceived environment of minimal competition. Overall contractor and subcontractor capacity is coming back into the market as larger projects are completed and newer projects are slower to start.

 

This increased competition may cause some negative flow-on effects. Tough economic times mean tough decisions will be made, and the market may make commercial decisions in order to win work. But Justin remains cautious of this approach: “You want a value for money offer that gives certainty of successful project outcomes. We should always be dubious about abnormally low tenders, especially at this stage of the market cycle.”

 

Good procurement benefits all stakeholders of a construction contract, but this needs to be considered on a project-specific basis. Contract terms and conditions should be as realistic as possible, and not favour one party at the expense of the other. “To achieve a fair outcome, terms and conditions should reflect each project’s individual risk profile and specific requirements,” Justin says. “In order to achieve efficient management of risk, this should be allocated to the party best suited to manage it.”

 

Project stakeholders should also carefully consider advice for alternative or non-standard procurement strategies. Justin continues to favour traditional procurement approaches wherever possible: “Let’s challenge our thinking when asked to head down a pathway of hybrid procurement to ensure it delivers the best possible project outcomes.”

 

This article was contributed by Justin Maritz and Gemma Christall.

 

Procurement Advice

If you require procurement advice for your project, please feel free to contact our Advisory Division leads.

Jesse Conradie - Associate Director

Newly Promoted Associate Director Jesse-Paul Conradie, Advisory Division

Jesse looks forward to continuing to promote a culture of dispute avoidance in his new role.

In 2019 we announced that Jesse-Paul Conradie had joined White Associates, bringing a powerful combination of risk management, dispute avoidance and dispute resolution expertise to our team.

 

Over the past four and a half years, Jesse has applied his unique skill set across White Associates’ wide spread of projects. “My passion has always been in dealing with contractual matters,” he says.

 

Jesse’s prior background in South Africa in various commercial management type roles has helped inform his current Advisory approach. “My responsibility was to protect the company’s contractual rights and interests. Dealing with a variety of challenges helped me gain an in-depth knowledge of EOT and prolongation claims, avoiding and resolving disputes, and negotiating with clients. My experience as arbitrator motivates me to approach contentious matters differently and seek amicable solutions to arrive at reasonable outcomes.”

 

In recognition of the value Jesse has added to the company and its clients, he has been promoted to Associate Director.

 

Director Justin Maritz describes Jesse’s promotion as a logical move, and common sense from a business point of view. “Jesse’s passion and ability to navigate complex contractual matters has an obvious synergy with the growth of our Advisory team. I look forward to continuing to grow the Advisory Division alongside him,” Justin says.

 

Excited for the future of the Advisory Division, Jesse says its primary focus will be to add value to the industry by promoting a culture of dispute avoidance. “This approach will be beneficial to all stakeholders by protecting relationships, spending less time and money on lengthy dispute resolution procedures, and shaping a better environment for the industry as a whole.

 

“We are confident that our contractual experience in both the construction and consulting arenas enables us to provide balanced advice and solutions. This approach reduces formal legal involvement.”

 

White Associates looks forward to our Advisory Division supporting your current and future projects.

 

From Cadet to Graduate and Beyond: Adam Harris

Adam Harris joined White Associates in February last year as part of our cadet programme. Our fifth cadet in the four years that White Associates’ cadet programme has been running, Adam has been working three days a week in our Auckland office while he finishes off his final year of university studies at Unitec. The cadet programme is designed to equip future quantity surveyors with the skills and experience required to kickstart their careers.

“I am studying a Bachelor of Construction majoring in Construction Economics, which is pretty much quantity surveying,” he says. “I took construction at school and took a liking to it. They taught us the basics of the construction industry, and I’ve always enjoyed maths. So, from there the two combined to lead me towards the world of quantity surveying.”

While in his first year at Unitec, Adam undertook what he describes as ‘a very extensive Google search through the construction companies’ to find QS firms that might be the place for him to start his career. “I looked up White Associates, and I was engaged by how client-driven they are, how it’s all about being fair in the construction industry. That really caught my eye. I didn’t even see the cadet programme opportunity, I just happened to apply at the right time.

Then I got the email saying that I was accepted. It was quite exciting.”

It is good news that although the world of work is undeniably different to life as a student, Adam’s early view marries up with his experience now he is established in the White Associates team. “School life is very different to work, but I am enjoying it. The main thing we talk about here is being fair. It’s about making sure that the contract is being administered in a way where everyone is following the contract correctly, and it’s a good team vibe.”

Over the last six months, Adam has taken on work on his own vertical built demolition project, doing site visits and making recommendations. “The main thing I have found about the construction industry is the importance of relationships. Being able to communicate with the contractor and client without feeling nervous about it, having open communication gets the desired outcome for everyone. The White Associates team and the contractor have been welcoming and supportive to me.”

One thing Adam has found helpful along the way is meeting a number of other previous cadets at White Associates. “When I first arrived, we had a session in the first week with previous cadets, Corize and Olivia. We discussed how the cadet programme works, what they’ve enjoyed about it, and any challenges. It was good to learn from them, and I am still enjoying learning every day. There are so many experienced people around our office that are willing to help you out. The learning opportunities have been great, and on top of that it’s been good while I was at uni because the cadetship gives you lots of flexibility. It’s not a set three days a week; it can be whatever suits your timetable, obviously through talking with the management team. That’s good when stress gets high if you’ve got some exams coming, and I do have exams coming up!

“I’m excited to see a project from the start to the end, which would be quite useful for my growth as well. I like the fact that White Associates has such a broad range of projects; it’s interesting to see a whole lot of different projects, especially early on in my career. I’ve really been exposed to pretty much everything.

“My first project in the construction industry, something to really look forward to.”

A cityscape from below

Updated Retentions Regime – What compliance requirements will project funders impose?

In this brief, we discuss this question and how changes to the retention moneys regime provide increased insolvency security and enforced accountability.

A Pivotal Time to Increase Subcontractor Protection 

In today’s market, we see an increasing number of liquidations within the construction sector. It is therefore crucial to ensure that all contracting parties have sufficient security in place to mitigate risks, and are reciprocally releasing securities once the other party fulfils its contractual obligations. Mismanagement of security releases puts undue pressure on cash flow and risks a domino effect which in some instances culminate in liquidation.

The recent amendment of the Construction Contracts Act 2002 (“CCA”) brings a welcome and timely change to the retention money regime. It increases and enforces the accountability of the Head Contractor to hold and report retention money correctly, in a way that reduces Subcontractors’ exposure. 

A sizeable percentage of projects are funded by banks and/or other financial institutions. The question arises whether funders will impose additional compliance obligations upon borrowers. 

Key changes to the CCA are as follows: 

 

Issues with the Original Act 

Retention money, as between Head Contractors and Subcontractors, can be defined as a portion of payment that Head Contractors can choose to withhold from specialist tradespeople for up to 12 months. Retention money provides the Head Contractor with security if work is not completed to standard and incentivises Subcontractors to perform their defects remediation obligations. 

Under the current retentions provisions of the CCA, retention money can be intermingled with other company money or assets. However, the misappropriation of retention money as working capital has proven to be problematic. Subcontractors “are often the first to miss out in the event a construction company becomes insolvent,” says Hon Dr Megan Woods, Minister for Building and Construction. Subcontractors usually have no visibility of how their retention money is being held or used. 

The Construction Contracts (Retention Money) Amendment Act 2023 (“the Amendment”) addresses both issues.

 

Commencement Date and Applicable Contracts 

The Amendment will come into effect from 5 October 2023, and will apply to all new or renewed commercial construction contracts where retention money provisions are included. 

We note that the holding of retention moneys against Subcontractors remains a choice, not a legal requirement. 

 

Requirement to Hold Retention Money Safely 

Under the Amendment, Head Contractors will need to hold retentions on trust in a separate bank account or complying instrument. This trust is automatically created when an amount falls within section 18B’s definition of ‘retention money’. The bank account, or other instrument, must be ‘compliant’ as outlined in section 18E, and Head Contractors must inform their bank or account holder upon deposit that there is retention money being held on trust.

 

The only instances where retention money usage is permitted: 

  • To cover the value of defects requiring remediation, in which case the Head Contractor is required to provide written notice to the Subcontractor, minimum 10 days before use, outlining the details of such defects; 
  • As permitted by the contract, in which case the relevant contractual procedures need to be followed. 

 

A trust containing retention money will end when any of the following occur: 

  • The Subcontractor receives payment of the retention money; 
  • The Subcontractor releases the Head Contractor of such payment in writing; 
  • The retention money is used to remedy defects as above; 
  • The retention money otherwise ceases to become payable to the Subcontractor. 

 

Retention money may be held for multiple parties in the same trust account. If a deposit or withdrawal cannot be clearly attributed to a party, the amount deposited or withdrawn will be apportioned according to each party’s ledger record balances at the time it was made. 

Interest on retention money can be kept by the party holding it, providing the contract does not say otherwise. 

Notably, liquidators and receivers for all liquidations and receiverships commencing after 5 October 2023 will immediately become trustees of retention money, regardless of the contract commencement date.

 

Enforcement of Accountability 

One of the most significant changes in the Amendment is that it substantially increases the level of accountability. 

It is now a requirement for the Head Contractor to keep thorough accounting records of all retention money held and provide detailed information to the Subcontractor. This provision of information must be done as soon as possible after an amount is deemed ‘retention money,’ and at minimum every three (3) months thereafter until the retention money is released. The extent of reporting requirements can be found in Section 18FD, which includes:

  • The bank account holding the retention money; 
  • The applicable construction contract; 
  • Details of any account transactions. 

 

The Amendment also introduces several strict non-compliance penalties. These include:

Failing to Keep or Use Retention Money as Prescribed: 

  • Directors: Up to $50,000 NZD (New Zealand Dollars) for each offence; 
  • Companies: Up to $200,000 NZD for each offence; 
  • Intentionally providing false information about retentions held: Up to $50,000 NZD for each offence. 

 

Failing to Keep Accounting Records as Prescribed: 

  • Up to $50,000 NZD for each offence. 

 

Failing to Provide Regular Reports of Retentions Held: 

  • Up to $50,000 NZD for each offence.

 

In addition, the Ministry of Business, Innovation and Employment is now empowered to investigate and enforce retention money offence related penalties. Head Contractors that fail to provide information requested during an investigation could incur additional penalties. 

 

Third Party Funded Projects 

We provide project funding representation quantity surveying services on a range of projects, working with all the major funders in New Zealand. As part of monthly draw down certifications, funders traditionally expect quantity surveyors to advise:

  • the sum of retentions certified by that draw down;  
  • that it is appropriate for the facility to be drawn and the funds credited to the nominated stakeholder; and 
  • with verification, that borrowers are retaining the correct amount of retentions. 

 

Funders usually require that construction contracts contain appropriate retention provisions. 

We suspect that funders will bolster their compliance requirements to align with the additional requirements prescribed under the amended CCA. This will inevitably include a precondition that construction contracts must respond to the amended CCA. However, experience has shown that simply referencing an Act does not produce the desired outcomes. We recommend that the mechanisms prescribed under the amended CCA be summarized in contracts thereby patently drawing the user’s attention to the express requirements. This will furthermore assist quantity surveyors in verifying compliance. 

Borrowers and contracting parties will need to ensure they understand and are in a position to comply with the new legislation when it comes into force. 

We are liaising with the various funders to provide them further advice and recommendations in this regard and will accordingly share further updates as we become aware of any additional requirements set by them. 

 

Further Information 

You can find more detailed information about the Amendment below: 

MBIE will provide additional resources, including guidance information for businesses and Subcontractors, over the coming months. 

 

Further Guidance 

If you require further guidance, please feel free to contact our Advisory division leads. 

Justin Headshot

Justin Maritz

Director

Justin has over 24 years' international experience and a proven record in achieving successful outcomes on challenging projects.

Jesse Headshot

Jesse Conradie

Associate Director

Jesse has a powerful combination of Advisory expertise including contract law, risk management and dispute avoidance and resolution.

Rebecca Ward Senior Advisory Consultant White Associates

Rebecca Ward

Senior Advisory Consultant

A qualified lawyer with extensive construction experience, Rebecca provides practical, ethical advice informed by the project lifecycle.

This article was contributed by Jesse Conradie and Gemma Christall.