New retention scheme came into effect on 31 March 2017 The details are set out in the Construction Contracts Amendment Act 2015. The retention money provisions are designed to ensure payment of retention money to subcontractors, even in the event of insolvency. Further clarification of the retentions trust regime was provided for in the Regulatory Systems (Commercial Matters) Amendment Bill (the Bill) introduced into Parliament in 12 October last year. The Bill is an omnibus bill and one of a package of three omnibus bills that contain amendments to legislation administered by the Ministry of Business, Innovation, and Employment. The primary purpose was to clarify that the new retentions trust regime will apply only to contracts entered into or renewed on or after 31 March 2017, however the Bill also introduced a new and significant alternative to the retentions trust regime in the form of a ‘complying instrument’. On 23 March 2017, the Bill passed its third and final reading. Sections 139 to 147 of the bill amend provisions in the Construction Contracts Amendment Act 2015 relating to retentions and came into force immediately after section 18 of the Construction Contracts Amendment Act 2015 came into force on 31 March 2017. In summary, from 31 March 2017: ● existing contracts, and their retentions, are not caught unless the contract is renewed for a further term after 31 March 2017 or the parties agree that the retentions provisions will apply; ● the retentions regime will apply to all retentions withheld under all construction contracts entered into or renewed after 31 March 2017, no matter how small, unless the contract is residential construction contract, vis. a contract for a person who is occupying or intends to occupy the premises that are the subject of the construction contract wholly or mainly as a dwellinghouse; ● the default position is that all retentions withheld by a payer in respect of commercial construction contracts entered into on or after 31 March 2017 must be ‘held on trust’; ● retention money may be held as cash or other liquid assets that are readily converted into cash; ● payers may invest the retention money and may retain any interest earned but are liable to make good any losses on the investment; ● retention funds can be comingled with other money but cannot be used as working capital; ● retentions funds cannot be used for anything other than remedying defects in the payee's work; ● retention funds are not available for the payment of debts of any other creditors, even if they are secured or preferential creditors; ● disbursement of retention money cannot be made conditional on anything other than performance of the payee’s obligations under the contract; ● the date of payment of retentions fixed in the contract cannot be later than the date on which the payee’s obligations under the contract have been completed; ● interest on retention money is payable from the due date for payment; and ● as an alternative, the payer may elect to put in place a ‘complying instrument’ to protect payment to the payee if the payer fails to pay – in practical terms that would mean an insurance policy, a bond, or a guarantee, provided that certain conditions are met, namely: