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Subbies’ law has helped sink construction companies

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  All sub contractors on Albany's Library Lane project have now picked up their tools from the site. All sub contractors on Albany's Library Lane project have now picked up their tools from the site. Photo: Alexia Russell

The changes in the building industry that improved life for sub contractors after construction company collapses may have helped sink those same companies, according to a building industry expert reports Alexia Russell for Newsroom.

Laws changed after the disastrous collapse in 2013 of Mainzeal, which left more than 1000 tradies not just out of pocket for retained payments worth a total of $18 million, but unable to access sites to get their equipment so they could continue to work. Amendments to the Construction Contracts Act in 2015 later made sure that subbies' payments were held in trust, so the banks couldn't swoop on them.

But Building Industry Federation spokesman Bruce Kohn says in times of thin margins for construction firms, the cash those retained payments gave them - albeit in other people's money - was enough to see them scrape through some tough times when banks were putting the pressure on.

"Possibly the changes to the act have removed the buffer that some companies were accustomed to using," he says.

At the time of the law change the Specialist Trade Contractors Federation, in welcoming the move, said that during economic upswings, firms often grow rapidly to meet demand and may over-extend themselves. "If they are up to their borrowing limit with the bank, then there is the opportunity to use the retention payments they are holding as working capital. If the company fails, historically those retentions have been used to pay the liquidator and secured creditors such as the bank or IRD." . . . . .