Understanding the Construction Contracts Act 2002
The Construction Contracts Act 2002 provides a process for dealing with payments and disputes under a construction contract, including retention money provisions to protect subcontractors.
On this page
The Construction Contracts Act:
- protects retention money withheld under commercial construction contracts
- helps to ensure a fair, balanced and timely payment regime
- provides a fast and cost-effective adjudication process for people with disputes
- provides enforcement mechanisms to recover any unmade payments.
You can access the Construction Contracts Act 2002 on the New Zealand Legislation website:
Construction Contracts Act 2002(external link) — New Zealand Legislation
Retention money
The Construction Contracts Act 2002 includes requirements for those who withhold retention money. Retention money is the amount held back to subcontractors from a payment made to them under a construction contract, as a security for their performance.
The Construction Contracts Act 2002 impacts anyone who withholds retention money, including:
- construction companies
- local and central government procurement teams
- liquidators and receiver companies
- banks and other financial companies and legal services.
It is not a legal requirement to withhold retention money, but if someone chooses to withhold it, they must comply with the Construction Contracts Act 2002.
The new requirements apply only to new commercial contracts from 5 October 2023 and existing commercial contracts that are renewed on, or after, that date. They do not apply to construction contracts with homeowners/residential occupiers.
To learn more about the new requirements, see ‘More information’ at the end of this page:
Previous changes to the Construction Contracts Act 2002
2010
A review of the Construction Contracts Act 2002 began. The 'Proposals for Change' Cabinet Paper recommended amendments be made to the Construction Contracts Act 2002 to make the existing adjudication process a faster, more cost-effective and efficient resolution option for people with disputes under construction contracts.
You can read the Cabinet Paper here:
Review of the Construction Contracts Amendment Act 2002: Proposals for change [PDF 158KB]
2015
Following the review, the Construction Contracts Amendment Act 2015 was passed by Parliament. The amendments provided:
- protection of retention money withheld under construction contracts
- a fair, balanced and timely payment regime
- access to fast and cost-effective dispute resolution
- cost-effective and timely enforcement of rights and obligations.
2017
The Regulatory System (Commercial Matters) Amendment Act 2017 made some additional changes to the retention money provisions to support the sector’s ability to comply with the new regime.
2019
A targeted review of the retention money provisions began. The targeted review followed some high profile construction company failures, where the retention money regime did not appear to operate as intended.
A report by KPMG (commissioned by MBIE) looked at the implementation and effectiveness of the retention money provisions in the Construction Contracts Act 2002.
Further work by MBIE indicated opportunities to strengthen and clarify the retention money regime, which were agreed by Cabinet in 2020:
2023
Following the review, the Construction Contracts (Retention Money) Amendment Act 2023 (the Amendment Act) was passed by Parliament.
The Amendment Act came into force on 5 October 2023.
Construction Contracts (Retention Money) Amendment Act 2023(external link) — New Zealand Legislation
Construction Contracts Act 2002(external link) — New Zealand Legislation
More information
MBIE’s Building Performance website has more information on the Construction Contracts Act 2002, including:
- the requirements for withholding retention money, including what happens to retention money if a company goes into receivership or liquidation
- offences and penalties if retention money requirements are not met
- how to make a complaint if there is a breach to the retention money requirements
- resources to help you understand the new requirements
- other requirements under the Construction Contracts Act 2002.
Construction Contracts Act 2022(external link) — Building Performance
Read the following on the New Zealand Legislation website:
- Regulatory Systems Amendment Act 2017(external link) — New Zealand Legislation
- Construction Contracts Amendment Act 2015(external link) — New Zealand Legislation
- Construction Contracts Amendment Regulations 2015(external link) — New Zealand Legislation
- Construction Contracts (Retention Money) Amendment Act 2023(external link) — New Zealand Legislation
- Construction Contracts Act 2002(external link) — New Zealand Legislation