The CostCon application handles accounting for retentions really well. As you would expect, our Product Manager and the software development team are keeping abreast of the proposed amendments to the Construction Contracts Act due to be introduced from April 2016.Shaun Caple, CostCon Product Manager has been reviewing the key aspects of the proposed changes:
Retention monies won’t need to be put into a separate bank account or lawyer’s trust account (contractors – big sigh of relief, lawyers – bugger)! The retentions are “deemed to be held on trust” in the contractor’s bank account. If insolvency of the contractor was to follow, the retention will be protected and not be used to meet other preferential creditors’ claims.Contractors holding retentions money must be transparent in the reporting of amounts held.
A contractor holding retentions cannot amend its construction contract to avoid the new provisions, or include provisions designed to delay payment of retention money.
Shaun reports, “CostCon already handles the accounting for retentions and also the reporting at both a job level and sub-contractor level really well. So on one level, we don’t envisage that we’ll require dramatic changes to the CostCon application, but we are still resolving the full impact of the changes”.As far as Shaun can tell, the new regime comes with a conundrum. On one hand as noted above, retentions won’t need to be held in a separate bank account. However, Shaun’s research also highlights on the other hand, retention funds can only be used to rectify defects, and cannot be available to be used as cash flow or for payments of debts of any other creditors.How you could do this in real world practice without separate bank accounts we aren’t as yet sure. We’ll keep you posted on progress.As part of expanding the CostCon package to cater for our new Australian based client, Cockram Construction, we have added a new suite of functionality to cater for bank guarantees which are used on their large contracts in Australia. This might be an alternative to holding retentions. Although, as we understand it, the market for Bank guarantees is not well developed in NZ - but you'd think your Australian owned trading bank will have heard of them!