New Zealand-based CBL Corporation is offering retention bonds to building companies following changes to rules governing retention payments in the construction industry.

The initial Construction Contracts Amendment Act required retentions – money withheld by a main contractor to ensure work is satisfactorily completed – to be held on trust for all new projects starting after April 1 this year. 

Now construction companies have the option of buying a retention bond to cover money owed, rather than ring-fencing the equivalent amount in cash or liquid assets.

CBL Director of International Business Dean Finlay says before the changes, companies would have needed to collectively raise up to $NZ20 million ($19.04 million) to match their retentions.

“There’s no doubt those costs would have resulted in lower margins for builders and developers, potentially making some projects unviable, and higher costs for purchasers,” he said.

“A retention bond provides security for the subcontractor and flexibility to manage cashflow for the principal – and, in the case of a principal going into liquidation, will likely mean a swifter and cleaner resolution for all concerned.”

Mr Finlay says the previous system left subcontractors holding too much risk.

“Often, a subcontractor’s entire profit margin is tied up in retentions.

“Under the old Act, if the developer or main contractor collapsed, the subbie’s business could very easily have followed suit.”

Construction company NZ Strong was the first to sign up with the CBL offering.