Retentions 2023

The Construction Contracts (Retention Money) Amendment Act 2023 (Act) received royal assent on 5 April 2023 and will come into force on 5 October 2023.  The new retentions regime will apply to construction contracts that have been entered into or renewed after this date.

While there have been amendments to the Act as the Bill progressed through the legislative process, the key features of the Act are largely unchanged from the original Bill.  Buddle Findlay has reported on the Bill over the past two years, including in the legal update 'What you need to know about the proposed draft changes to the Construction Contracts retention regime'.  We have previously commented on implications for directors in the legal update 'Directors beware – what is a retention?', and a potential industry shift by principals to a preference for bonds in 'Construction Contracts (Retention Money) Amendment Bill - What are the practical impacts?'.


The purpose of the Act is to strengthen and clarify the retention money regime in the Construction Contracts Act 2002.  In short, under the Act:

  • There will be a deemed trust over retention money (noting the definition of retention money is broader than just "retentions" under a construction contract)
  • There are new rules for holding, managing, reporting on, and using retention money
  • If a receiver or liquidator is appointed over Party A (ie the payer), then they become trustee of the retention money (unless Party A has already been replaced as trustee)
  • There will be penalties for non-compliance (including on directors).


We expect the passing of the Act will be welcome news to payees (particularly subcontractors), providing greater protection and certainty over their retention money.  For many payers (ie principals and head contractors), the Act may reflect their current practice.  However for others, the Act will necessitate changes to their processes and documentation, and significantly increase their administration of retention money.

Banks, lenders and insolvency practitioners should also familiarise themselves with the Act and changes to the retentions regime.  In particular, noting:

  • The deemed trust over retention money, and duties which apply to trust money.  The trust applies regardless of whether the customer / borrower / insolvent party has correctly deposited the money in a separate account, and so could still be co-mingled with other secured assets
  • For liquidations or receiverships that commence after 5 October 2023, liquidators and receivers will become trustees of retention money immediately, despite when the relevant construction contract was entered into.

Please contact our construction team if you would like a more detailed summary of the changes, or if you have any questions as to how the Act may impact your business.