Otago Polytechnic

How do retentions hold back the New Zealand construction industry? Dr Priyanka Raina has investigated.

In the construction industry in New Zealand we continue the 200-year-old practice of retentions, holding back a proportion of payment pending resolution of outstanding issues. One issue with retentions came to a head in 2013 when the liquidation of Mainzeal  jeopardised large sums owed to many subcontractors. As a result the legislation has recently been changed, so that retentions are now effectively held on trust for subcontractors rather than being available to pay secured creditors.

Dr Priyanka Raina lectures in Construction Management and Quantity Surveying at Otago Polytechnic's Auckland International Campus. Her PhD thesis, which she undertook through AUT, was supported by BRANZ. She looked into the New Zealand practice with respect to retentions. While the legislative changes were necessary, she suggests they do not go far enough and that retentions will continue to hold the industry back. 

"The proportion of retentions relative to the amount of work required to be done is still an issue; there is no rational basis for determining what percentage is used. Also with so many SME subcontractors there is not a level playing field in negotiating retentions in construction contracts."

Priyanka wonders whether we need different retention regimes for different types of project, and would like to continue her research to examine possible alternatives to the current New Zealand practice. She recognises that the issue is complex and it will be difficult to find a way ahead that works for everyone. 

 

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BUSINESS & MANAGEMENT

July 2017