MPs reject bonds idea to safeguard subbies

A select committee has rejected the idea of financial bonds to protect subcontractors in the building industry.

The finance committee yesterday reported back suggested changes to the Construction Contracts Bill.

The Government's proposals followed concern about the number of insolvencies among smaller contractors and subcontractors when large companies folded.

The bill would invalidate "pay if paid" and "pay when paid" clauses many contractors and subcontractors have to work under.

The committee said that while most submissions supported the principles behind the bill, many wanted different mechanisms to enforce it.

A lot of submissions wanted a mandatory bonding system, which would involve the property owner or head contractor lodging a bond for a part of the contract price.

The most common bond level suggested was for a mandatory 10 per cent on contracts over $500,000.

Submitters argued those who could not raise the bond themselves or through financing would send a strong signal to subcontractors to beware.

But the committee said a 10 per cent bond at a 1.5 per cent finance rate would cost the industry $5.7 million a year, while the benefits were hard to measure.

The committee decided Associate Commerce Minister Laila Harre should look at the idea of bonds for future consideration. To introduce the concept of bonds now would mean delaying legislation that was needed today.

The bill will also:

* Set out default provisions requiring periodic payments within the construction industry unless the parties to a construction contract agree otherwise.

* Force someone who is withholding a payment to issue a notice stating reasons for doing so.

* Establish an adjudication process for dispute resolution.

* Allow a person who has not been paid without good reason to suspend working.

* Allow an unpaid contractor to register a charge against the construction site, when the owner of the site is related to the body owing the money.

Last May, work on five Auckland construction sites was shut down when a building firm went under owing $1 million to at least 50 subcontractors and suppliers.

The collapse followed the downfall of other Auckland builders, including the $28.5 million collapse of Hartner Construction and Hartner Group and the $20 million failure of Goodall ABL.

- NZPA