If you missed last week’s Quick Take, we covered what a retention is, how it is calculated under NZS 3910, and what the Construction Contracts (Retention Money) Amendment Act 2023 changed for commercial contracts. You can read that article here.
This week: what happens when the principal is slow to release your retention after practical completion, and what you can actually do about it.
How retention is released under NZS 3910
Under NZS 3910, retention is released in two tranches.
The first half is due at practical completion, the point at which the works are certified substantially complete and the principal can take possession. The second half is due at the end of the defects liability period (DLP), once the contractor has remedied any identified defects.
The DLP is commonly 12 months from practical completion, but it is set by the contract, not fixed in legislation. Check the contract schedules or special conditions. The release date is almost always specified there.
What the Construction Contracts Act says
The Construction Contracts Act 2002, as amended in 2023, treats retention money as trust property from the moment it is withheld. Release is governed by your contract, not the Act. But this is where your position strengthens.
If the principal wants to use retention to remedy defects, they must give you at least 10 working days’ prior written notice naming the specific defects they intend to remedy. They cannot simply hold your money without telling you why.
The Act also requires the principal to provide you with regular information about your retention: once as soon as practicable after the money first becomes retention, then at least every three months until it is fully paid out. If they are not doing that, they are already in breach.
Your first move: a formal payment claim
A payment claim is a specific, formal document under the Construction Contracts Act. To be valid it must identify the contract, state the amount claimed, and indicate a due date for payment.
Once served, the principal has 20 working days to issue a payment schedule. If they do not, the full claimed amount becomes a debt due and payable. You can then apply for summary judgment in court or refer the matter to adjudication.
Mediation: when the relationship matters
Before escalating to adjudication, mediation is worth considering, particularly where there is an ongoing relationship with the principal or where there is genuine uncertainty about defect scope.
Under NZS 3910:2023, mediation costs are split equally between the parties. Each side covers their own legal and preparation costs. The mediator’s fee and room hire are shared. This is specified in the contract and applies unless agreed otherwise.
One thing worth knowing: retention money held on trust cannot be used to pay mediation costs. Under the Act, trust funds can only be used to remedy defects. Using them for mediation or legal fees is a breach and carries fines of up to $200,000 for the company and $50,000 per director.
Adjudication: fast, binding, and underused
Adjudication under the Construction Contracts Act is designed to be fast. Once a notice of adjudication is served, the full process from filing to decision typically takes six to eight weeks. The decision is binding and enforceable immediately, even if the losing party intends to challenge it.
Most contractors do not use it because they do not know it exists, or because they worry about damaging the relationship. But adjudication was specifically designed for this situation: a legitimate payment dispute on a completed project where one party is dragging their feet.
Where the amount is clear and the principal is simply not paying, adjudication is usually the sharper tool. Mediation is better where there is genuine ambiguity or where preserving the working relationship has real value.
What actually works in practice
In practice, most retention disputes resolve after a formal written demand that references the Act, names the contractual release date, and makes clear that a payment claim will follow. The reason that works: the principal now faces real consequences. Under the 2023 amendments, non-compliance carries fines of up to $200,000 for the company and $50,000 per director. That is a significant shift from the old regime.
Knowing your rights and being able to put them in writing changes the dynamic entirely.
The practical takeaway
Check your contracts now. Know when your retention tranches are due. Keep a simple log for each project: the retention amounts held, the practical completion date, the DLP end date, and whether each tranche has been released.
When a tranche is overdue, write to the principal. Reference the contract clause. Reference the Act. Ask for written confirmation of the release date and the amount held. Most of the time, that is all it takes.
We cover retention, cash flow, and post-contract administration in depth in our Full Estimating and Surveying Certificate. If you want to build real competence in this area, that is where to start.
