The Climate Control Companies Association (CCCA), representing New Zealand’s refrigeration, heating, ventilation and air conditioning sub-contractors, hasexpressed its dismay over Mainzeal’s receivership and backed calls by other industry groups to improve security of payments for subcontractors.
Although the Construction Contracts Act clarifies the process for claims and subsequent adjudication, it does not extend to explicitly protecting retentions held back from sub-contractor payments – essentially providing interest-free loans to prime contractors.
Prime contractors will often retain 10 percent of a contract value for up to two years, arguing they are necessary to enforce performance or complete remedial work.
“The announcement of Mainzeal’s financial meltdown on Waitangi Day highlights again the vulnerability of sub-contractors to the knock on effect of a major builder going bust,” says Rob Morgan, Chairperson, CCCA. “New Zealand cannot afford to lose the specialist skills and trades represented by our members, and those sub-contractors in other industries – who will now carry the can for Mainzeal’s losses.”
“We believe it is now time to review security of payments of retentions, and identify cross-industry alternatives, potentially such as an escrow or trust, to ensure sub-contractors interests are protected. Subcontractor retentions are ineffective, add hidden costs on projects and actually increase the financial fallout from failure of contractors.”
The CCCA Board is waiting for further news from PwC and in the meantime intends surveying members to ascertain the full extent of the industry’s exposure.