MICHELLE CIRSON (00:00.92)
Hello, welcome to the Subbies Toolbox Podcast. I'm your host, Michelle Cirson construction adjudicator, lawyer, and the founder of the Subbies Toolbox. Today on my podcast, I want to talk about retentions and whether or not there will be a ban on retentions. So I first heard about this issue. I'm going to give credit to Adam Hall, and I'm just going to share his little video that he did on Instagram about this.
because Adam was actually the one who first brought this to my attention. I didn't know this was happening in the UK. So it looks like there's a bill that may be passed in the UK. It's not not certain. It's not the law yet. But Adam will tell you about it.
MICHELLE CIRSON (01:39.894)
So I tend to agree with Adam in terms of the upstream parties really do take the Mickey out of retention. And I can tell you from my own experience with helping people debt recover that retention almost always is part of a dispute. If there's a payment dispute, they will find a way to incorporate the retention or wrap up the retention in that as well. And it's always the final claim, so they can hoodwink you out of the progress claim for the last part when they no longer need you.
And then the low-hanging fruit of the cash retention that's sitting right there for the taking. So I do agree, the dodgy upstream parties who are incentivized to just have that money grab at the end of the job, retention is sitting there right in front of their face. Historically
Retentions have propped up the cash flow of upstream parties. And in some states and territories, we've had trust accounts bought in that have tried to fix that, and we've seen builder insolvencies come from it. So I think it's probably the case that they were being propped up in a big way with their cash flow with retentions. So this is actually a major issue. Now, in terms of the UK and the bill that they're trying to pass, which would put limits and effectively ban cash retentions in construction contracts.
Such an incredible interesting move to go down that path to legislate the ban on it. And there's a few implications that I wanted to share with you that I think might be helpful because, as Adam said, the free market will weed out people by reputation who don't come back to fix their defects. And in every state and territory we have statutory defects liability periods, and there are real consequences for not coming back and rectifying your defects.
But if you ask any builder or developer, they will all tell you that retention is never enough to fix a defect, anyway. If you have a proper defect, the retention that they hold under the contract will never be enough to actually fix a defect. And the other thing I would say too is that if you have major structural defects in your building and
MICHELLE CIRSON (03:52.003)
They're not being picked up in the course of actually building the building, then there is an element of contribution to that problem that I think those upstream parties need to take on board. Because the builders are solely saying, you, subcontractor, have that defect in your subcontract works, and yet it could well be some coordination issue that goes to the heart of building compliance that doesn't actually.
It's not obvious on the face of it what that issue is. So if you look at all of the new seismic regime that's come in and the rules around that in the last ten years, there could be multiple trades involved in one particular defect that causes a massive code compliance issue.
And really, it's meant to be that builder who is coordinating those multiple trades to oversee and make sure that that doesn't happen. And that's ultimately why they're the head contractor licensee. So there's a whole bunch of issues that come with retentions. And for years I've been saying that retentions just cause disputes. They genuinely just cause disputes. And most of the time, retentions in terms of
The builders trying to use retentions against subcontractors, they're not actually properly used for defects. And that's because when you're going through your progress claim process and the work is not yet at PC, the builder will withhold money for defects at PC that should really.
The retention is supposed to be there to warranty that. So if there's minor defects at practical completion, the builder still has the right under security of payment laws to value down the work for defects. So there's a whole raft of issues, and this might be a bit longer of a podcast in terms of being able to cover it all. And I've got some notes here because I want make sure that I get across all of the things that I think people are going to be really interested in. Do I think there's going to be a ban on retention in Australia? Look, no.
MICHELLE CIRSON (05:53.132)
I don't think there's gonna be a ban. And the reason I don't think there's gonna be a ban is because banks need security over downstream parties for the value of the loan that is being given and the proceeds and the money that's being passed down so that these assets are actually saleable and of value at that time. And there's a whole raft of ways you can get security.
Over somebody. It doesn't necessarily have to be a cash retention. And just on that, I want to circle back, and this was part of what Adam shared was this Denton's article. So this is the article that I found that I think Adam was referring to on his video. And what they're saying here, Dentons have come along and they're talking about what the implications would be for construction contracts if
There's a ban on retentions. And straight away, they've said we therefore need to start thinking about what could take place by way of security to ensure contracting parties perform their obligations. And straight away they're talking about insurance, bonds, and bank guarantees taking the place of those retentions. So
It might not actually be the best thing that cash retentions is no longer an option for subcontractors because if you don't have assets or cash at bank to come up with a bank guarantee for your contract sum, you might not even be able to leave the yard to get a start on a job because you might not be able to come up with the money to finance the security at the start of the project. So most of you will know when you have to come up with a bank guarantee, if you're going to use a bank guarantee instead of cash.
Retentions under a subcontract, the builder's going to require you to give that bank guarantee within like seven days of signing the contract. Whereas when cash retentions are taken, they're taken at a rate typically of 10% up to 5% of the contract sum. So if you had to come up with 5% of your contract sum on day one of your signing your contract, you would have to have either cash it back.
MICHELLE CIRSON (08:04.062)
at bank or assets that your bank is prepared to loan you effectively a bank guarantee.
And the bank's going to guarantee the payment of that cash to the builder if you don't perform. And you would have to be able to do that on day one of your contract. So that's actually the builder's lot in life. And subcontractors do forget that, that the builder does have to come up with that 5% at the start of the job. Some builders, some head contractors will elect to have cash retention, but it typically isn't something that's done on projects in excess of $10 million because the upstream parties and and the financier want the security from day one.
Because they're effectively going to be loaning that builder to typically dig a big hole and create something that's less valuable in the bell curve of the construction work until that project is actually worth something for that financier to sell. So there's all those aspects to consider when it comes to do we not want to have the option for cash retentions in Australia or in the UK for that matter. Now I want to temper that with.
When I was a builder CA, I worked for a building company who the GM told me quite a few times that they ran their entire accounts department expenses and salaries on unclaimed retentions. Now I'm not even talking about retentions that were disputed or not paid. I'm talking about that the subcontractors just never came knocking for them.
never claims those retentions. So there is a massive aspect of that in the industry where builders were actually budgeting for a good decade or so in the heydays saying, hey, we can actually anticipate that our profit will be or that we can allocate some revenue for expenses based on subcontractors never claiming their retentions. So if you're listening to this and thinking those subcontractors may be crazy,
MICHELLE CIRSON (10:06.163)
Sometimes the business doesn't survive that long. Sometimes the person goes back on the tools. Sometimes they sell their business, and there's a transition where the original person who might have known to claim those retentions is no longer there. So there is this scenario where nobody comes knocking for these retentions. And that has been part of what has incentivized the industry to go with cash retentions. Now I wanted to
really cover off on what are the current rules in Australia about retentions. And not just retentions, but also security under construction contracts because
Each state and territory effectively has the ability to have their own rules about it, but Queensland is the only state that actually has limitations on the amount of cash retention you can hold under a subcontract. So under the QBCC Act, there are limitations on holding cash retentions under a subcontract, and you can't hold more than 5% of the contract sum.
Now, there's also a section in there that says that you can't take more than 10% of any given progress claim for retentions as well. So those guardrails are in place to make it so that subcontractors aren't forced to cough up 50% like the full full 5% in cash retention on day one on Queensland jobs. Now, Queensland's also gone one step further and have looked at
What would happen if there was a defect? And how can we have some guardrails around builders not even giving the subcontractor a chance to rectify those defects or telling them about it? And then at the end of the defects liability, turning around and saying, no, you had a defect, we're using that cash retention now, that's ours, we went and spent it with somebody else. So there is a requirement under the QBCC Act, it's called a 67-J notice, and upstream parties are required to give the downstream party
MICHELLE CIRSON (12:02.88)
Notice within 28 days of becoming aware of their need to have recourse to your retention or security. So they actually do have to comply with that, and there's case law to say that if they don't comply with that, they may lose their entitlement to hold that retention. So all that's great when you think, well, look, there's some protections in the law, but in a practical sense, how do we actually make the person pay our retention to us? And
This is going to be controversial, but this is where I prefer cash retentions over any other form of security. Unless you have a bank guarantee with an expiry date, and even then there are some real risks with that, so I'll go into that in a second. But just as a last cover-off on what the law currently has in Australia and in Queensland around retentions and security, we do have a trust account regime in Queensland for particular projects.
And look, I can't say it's a complete failure because one project where the builder has gone broke, the retentions have managed to have have been released from that retention trust account. However, on many projects, those trust accounts have been frozen and nobody can get the money out of them. So under the BIF Act, the only people who can take money out of the trust account is the trustee is supposed to be able to.
take the money out to pay it to the beneficiaries, or the trustee can take the money to use it to rectify defects if they have given the right notices under the contract and given the subcontractor an opportunity to rectify. Now when the builder goes broke, the trustee's not doing a single thing because the trustee's in liquidation. So the liquidator has to come along and work out how to unravel the knot with all of the
Retention rules and then also talk to the regulator. And in the most recent situation where the money has been returned to subcontractors, it required the external administrator to apply to the court and get a court decision saying that they could actually return the retentions to the subcontractors. It was more than two years from the moment the builder entered liquidation that the subcontractors actually were had the money returned to them out of the trust account.
MICHELLE CIRSON (14:22.544)
One particular case that went to the court, the judge acknowledged that if the money never ever ever came out of the trust account, that it would go back to the Commonwealth. And that's quite a big deal. To me, that is a fundamental flaw with the trust account regime in Queensland. That said, because the money is being put in trust accounts and it's not in the builder's cash flow in Queensland, there are some very good
Success stories we've had negotiating terms around retention with our toolbox members. So because the money is not sitting in the builder's bank account, if the builder has a very good sense that the subcontractor is not going to fly the coop, perhaps they're working for them on multiple jobs, perhaps they've worked for them for 20 years, perhaps there's just genuinely no incentive for this subcontractor to disappear.
Or there's a trusting relationship there. The builders are being practical and saying, we don't need to hold any retention on you, there is no point. We would just have it in the trust account, and it's too much administration for us anyway. So the trust accounts are disincentivizing builders to use retentions for low-hanging fruit. The other issue is.
Those trust accounts allow subcontractors to big brother the builder in circumstances where the subcontractor might be thinking, builder's not putting my retention in the trust account. I can actually ask for a request for a statement of the trust account from the builder. And if they don't give it to me, I can go to the QBCC and I can get the QBCC to investigate where my trust account retention money is.
So that is some of the benefits of the trust account regime in Queensland, but
MICHELLE CIRSON (16:12.15)
In my opinion, there's more problems with it than there are success stories. And one of the things that really bothers me most about the trust account regime in Queensland is that we used to be able to use what's called a subcontractor's charge if we thought our builder was going broke. And it allowed us to give a notice very quickly. It's just a form off the QBCC website where the subcontractor could go and get a qualified person to certify that they'd done the work, and then you would give it to the developer.
And give a copy to the builder. That process could allow subcontractors to commence proceedings in the court straight away after it's served and become a secured creditor of their debt. You can't do that over money that is in a trust account in Queensland under the BIF Act anymore.
The path to actually trying to enforce a debt recovery process now because of trust accounts is actually you really only have the slow boat to China process of using the court or adjudication, which again most of the time takes between 30 and 60 business days to get to the point of a judgment debt. So there are pros and cons with each scenario, but the management of retentions is costing the government.
And builders so much money that I think Adam's right, there is a case for retentions to be abolished. The other reason I think there's a a real case for retentions to be abolished is because if we all lived in common sense land, why is the party who is providing the line of credit, i.e. being paid in arrears, the one giving the security up the stream? So you
In logic common sense land, it doesn't make sense that the party who is actually doing the work for value, and this includes builders, it does include builders, we are carrying out work for value, being paid in arrears, and yet the downstream parties have to give the security upstream. It just doesn't make sense. If the banks were valuing based on the work that was carried out,
MICHELLE CIRSON (18:22.263)
And and based on having enough security over the land, so the principal actually could c cough up the security to the bank, which is where it should all start, then I think the the need for downstream retentions just wouldn't exist. The regulators would have more resources available to them to be regulating subcontractors and builders over building defects if they weren't spending so much time and money squabbling over trust accounts.
And dealing with disputes as well. So definitely a case for nil retention in common sense land. However, if it was to be legislated that there is nil retention, we need to make sure that the amendments actually say or security over downstream parties because
If it turns out that subcontractors don't have the option to use cash retention and can only use bank guarantees or insurance bonds or director guarantees, you're going to end up in a world of hurt because most of you will just elect to sign the director's guarantee because it won't cost you anything at the time to sign it rather than actually.
Come up with the assets or the cash at bank to be able to have a bank guarantee on day one of your contract. So in terms of trust accounts, not a fan overall, although we do get better terms negotiated in contracts because of the trust accounts, because the retention is just a bargaining chip. And the other thing I want to touch on too is statutory defects liability periods. So
There are no rules on how long your defects liability period under your contract can be. So if you sign up to a defects liability period for five or ten years under your contract, that's your lot in life. So while there in Queensland there are rules on maximum retention amounts, the percentage that can be held, there are no rules on the length of the defects liability period. There's also a bit of a grey area about
MICHELLE CIRSON (20:27.407)
additional security which is not just for contract sum retention. So additional security would be for things like unfixed goods where the subcontractor is going out and buying a five million dollar piece of equipment that they're going to put into a building and the builder or the principal are paying the subcontractor to procure that item and then because the subcontractor's got that cash to go out and buy this piece of equipment
The upstream parties ask the subcontractor to come up with a bank guarantee for the value of the cash payment they're getting. So there's a whole lot of ways that these commercial contracts can be dealt with. Now I want to just circle back to the reason I prefer cash retention over bank guarantees and insurance bonds. And that's because in most states and territories you can't.
Use adjudication to get paid for a bank guarantee or have compel an upstream party to give you back the bank guarantee. You can only use adjudication to recover cash that the builder is holding. The exceptions to that is Victoria and Western Australia. So they have actually just written into their security of payment laws that you can also get an adjudicator's decision that a bank guarantee has to be returned.
So that's a big deal because if you're giving bank guarantees to your builder, the options for debt recovery of the bank guarantee require a court order to be able to compel that builder to give it back to you. So if you're giving out bank guarantees for less than $50,000, it will cost you almost that to go and get the judge to say that bank guarantee has to come back.
The other issue that happens with that is that you typically will have to commence a proceeding for an injunction or an originating application to get a direction from the court that the builder has to give back the bank guarantee. And almost always the upstream party will be able to dream up enough mud to have it rolled into a slow boat to China.
MICHELLE CIRSON (22:35.087)
Court proceeding where they can have a counterclaim against you. So if they go doing that, you're now stuck in a proceeding that could take two years to play out, and the counterclaim against you may well include things like liquidated damages, delay damages for every day that you couldn't meet your program rotation, whatever else the builder might be able to dream up. And the unfortunate situation is that you can sue anybody.
For anything, make any allegations. Whether or not you can prove your case is a totally different thing. But the cost of you being involved in that proceeding just to get back a bank guarantee, particularly if the bank guarantees for something like $100,000 and you spend $400,000 in legal fees over two years trying to get it back, you're in a world of hurt. Why do people even fight that much for bank guarantees? Well
What happens is you're put in a position where you just can't let these things stay out there like a loose end. The bank will make you do something about it. So if the builder doesn't cash it in and the builder just refuses to give it back to you, and you can't get the builder to sign a fancy letter saying, We've lost it, we relinqu we relinquish our rights, and there's no claim over this bank guarantee, then what needs to happen is the bank will effectively
hold you responsible for that liability until it can be resolved. So that's why a court is needed to be able to wrap up those loose ends. So in terms of bank guarantees we actually see them weaponized more than you would think. And the worst part about it is it's usually when the builder is going broke that this will happen and it will happen in the dark of the night with no warning. So
a good example we had a client a few years ago who was working for a builder, everything was fine, there was no real warning that anything was going pear-shaped, and the builder in the dark of the night went to the bank and tried to cash in four bank guarantees. He was successful in cashing in two of the four bank guarantees, but two of them
MICHELLE CIRSON (24:38.051)
a lawyer managed to get an injunction over that. But this subcontractor was then stuck on the conveyor of court proceedings, having to try to get two bank guarantees back that were for just over six figures each. And the court proceeding kept going for about 18 months. So that subcontractor had that hanging over their head. Ultimately
The builder was leaving the state, was no longer trading up here, and had packed up and gone home. So didn't need to hold a license anymore, no more work up here. So it painted a picture, and we can't be sure that this is what was going on in the background, but it painted a picture that
The builder was leaving town, potentially just saw an opportunity to crystallize cash in the bank account at a period in time where it just happened to coincide with minimum financial reports to the building regulator for that builder's licence category and then
Just kept the court proceeding ticking along for long enough that they were able to leave town, wear the subcontractor down, and then say, Hey, we've both spent enough in legals, why don't we just each party bear their own cost and part ways? So they ended up ending the court proceeding. Now, what saved the subcontractor in that court case was that the subcontractor had expiry dates on his bank guarantees. So
Once those expiry dates came around and the builder didn't do anything, didn't apply to the court to have them extended or new ones g handed over or anything like that until the court matter concluded, the subcontractor was able to then have the leverage to say, well these things have expired.
MICHELLE CIRSON (26:20.739)
You guys don't really have a case. If you want to try and make your case, it's going to be hundreds of thousands of dollars in legals. And they ultimately settled that case. But that's a good example of where bank guarantees can actually be weaponised against downstream parties in a predatory way.
When we see that happen, the most likely reason the builder says or the upstream party says they have a right to those bank guarantees is liquidated damages. So we all, everyone in the industry, when you think about liquidated damages, is just one of those things that we feel like is our lot in life. And I genuinely think that industry standard is just what downstream parties put up with because they're so
bullied by upstream parties historically. So the way that the industry has worked
These construction contracts are stacked to keep us under control, downstream parties under control, and just back on the on the hook waiting for the next feed or the next progress claim. And retentions play a massive part in that. So if we were to look at construction contracts with a family law lens in terms of what the indicia are for coercive control in family law matters, and withholding cash,
limiting information to downstream parties, styming their ability to have any contractual term to protect themselves. So a good example is most subcontracts will have a clause in it that say that you are not allowed to apply for an injunction if the builder tries to cash in your bank guarantee. That's in almost every single builder's contract I read. So
MICHELLE CIRSON (27:59.524)
The other issue I think too is deeds of release that are required to be given in order to trigger practical completion. That is another issue.
Indicator of a coercive control relationship where the upstream party is holding your retention release to ransom until you sign the deed of release. So there are more issues, way more problems with this whole arrangement than just cash retention. It's almost as if where governments.
see a problem or say, that's a inflammatory issue, we'll just stamp out that one thing and stop that one thing from happening. That really it could have unintended consequences where suddenly subcontractors are required to give bank guarantees or directors' guarantees or insurance bonds instead. And that is gonna mean that a good deal of subcontracting businesses will not be a able to afford to even start a business because they won't be able to have
money in the bank to give a bank guarantee on day one when they sign their contract. So the problems with these bank guarantees and insurance bonds, the alternative types of security, is the personal liability
The risk that they can actually just cash these things in and then appoint a liquidator. So a little money grab hoodwink right at the last second, and then leave the liquidator to deal with those things. And then there's a court order required to actually compel the other party to give those things back. So at the moment, with cash retention, there are relatively good security of payment laws around Australia.
MICHELLE CIRSON (29:40.516)
Where if subcontractors have an accounts receivable escalation procedure in place, have very good ITPs and are managing their quality, it's really difficult for a builder to actually win an adjudication on the basis that there's a defect, if there's not a genuine defect. So if retention is hand on heart being used to pay for the rectification of defects that a subcontractor has left behind, and that's what Adam's saying, is Adam's saying
Look, the free market will weed out dodgy w operators. And so if you don't have your quality sorted and you've got defects, then you're just not going to get work. If you guys are operating in a way where you have an accounts receivable escalation procedure, you have ITPs, photographs, records signed off by the builder to say that your work is defect-free at the point you get practical completion.
And then in terms of your retention, if you understand the way the Security of Payment Act works in terms of claiming retention, there is no reason that you shouldn't be able to debt recover. In fact, builders probably won't pick on you.
if you've got those things in place because they'll be going, hang on a second, this person's either getting help or they're running a professional business and they don't have defects. So they're not going to pick on you because you're not the low-hanging fruit that retention attracts. It's the subcontractors who never send a contractual notice at all, don't review their contracts, don't have ITPs, and then if they're doing those things in their business in a loose way, of course they might have defects as well. So those are the things to think about in terms of
where the cash retention's the worst. I actually think cash retentions, if there's gonna be any, are the best form. Because we can get them back for you pretty quickly if the builder's not doing the right thing. I don't want to talk for too long because my podcasts are typically over by now, but
MICHELLE CIRSON (31:34.522)
There is a recent case in Queensland. It was a Tomkins v. York Holdings, I think, where the judge considered in a payment schedule whether it was enough for a builder to give a defects list or to itemize defects that the upstream party said they could value down the work for. Now, in that case, the court said it is not enough.
For you to just say there are defects, this is what the defects look like, and therefore we're paying you nil. It's not enough. They have to actually go and value the estimated cost of rectifying defects. So if you look at that case from a security of payment perspective, and then that coupled with in Queensland the requirement for the 67J notice, you have a very good chance if your builder says there's defects and they're not genuine defects.
You have a very good case of actually getting paid anyway, even if there are defects, if the builder doesn't value the cost of rectification of those defects. So if you understand security of payment and you have a compliant accounts receivable escalation procedure that you can action at any time that your payment claim is in the process, then cash retentions are the easiest and the best way for us to get that back for you.
Now, in terms of some of the cute things that our Subbies Toolbox members do to minimize the risk of retentions being low-hanging fruit, one thing I want you to think about. So these are the ways I think the industry can actually make a difference when it comes to liability with retentions and the amount of money that the builder holds upstream.
At any given time, because it's not just retention money that you lose when the builder goes broke. So we recently had a toolbox member who was doing a, I think it was like a $1.5 million contract, and they were an electrical subcontractor, and a good chunk of that, about $900,000 worth of that contract, was actually temporary traffic lights.
MICHELLE CIRSON (33:35.866)
For that project, it was somewhere in the city, and they were doing all these temporary traffic lights and the electrical services to manage all of the temporary lighting for the project. So 900 grand of a $1.5 million project was temporary work that at practical completion would not be there anymore. And the subcontractor came to me with the contract review and I said, well.
Why are you having retention held on the full val five percent of the contract sum? It should be five percent of the work you're doing. You're not actually gonna have any permanent work.
Other than the difference between the temporary work for the 900 grand and the $1.5 million contract sum. So the subcontractor went back with that logic-based reason that they shouldn't have full freight retention held on that job. And the upstream contractor just accepted it, said, Yeah, that makes sense. You're not actually, there's this most of this contract is not even going to be here. It's not actually building works. It's only the portion that you're actually doing the work. So the temporary works is something to keep an
Eye on because if you are a form worker, builders will say they want to hold retention on you until practical completion. We have a lot of form working clients. They get a PC at topping out rather than when the perimeter scaffold drops and you have to come back for the crane infill or the front stairs. Most upstream contractors will allow form workers to just get their first trencher retention released at topping out. And then
A three-month defects liability period after that. Sometimes we see them break up the contract so that the crane infill is done on a purchase order or something like that, but for the most part it's PC on topping out and three-month defects liability period just to cover any types of patching or anything like that that they're doing. Third example I want to give you is where you need to be thinking in a practical sense about your practical completion because.
MICHELLE CIRSON (35:38.468)
We have a few piling subcontractors in our Subbies Toolbox membership, and some of these things that they're coming to me with are, hey, I'm going to be having bracing on site. The length of time that I have bracing on site is going to depend on how long the builder takes to do this next portion of work to see if I can get access in there to get it out. But
It says in my contract that I have to have removed everything from site in order to get practical completion. So we mark up their contracts at contract review time to make sure that the time that you get your retention release and trigger practical completion is carefully managed in common sense land, not contract land, because common sense should dictate that if it's just bracing that's on site that needs to be removed and the builder is actually in control of how long that bracing is going to be there, then the subcontractor
Should not be at risk of liquidated damages for the period of time the bracing's there. Another example can be if concrete test results need to be submitted as a condition of practical completion. So the subcontractor can be completely finished their work and just waiting for concrete to dry, concrete to harden, so that the concrete test results can come back. And lo and behold, they could be
Are unable to trigger practical completion under their contract and so therefore at risk of liquidated damages. So the reason that I bring this up in the context of retention is not necessarily a liquidated damages issue. It's because the amount of time that you leave that money with your builder is the more likely.
The builder will have an issue. So you're leaving it with them for longer so they can dream up a reason to hold that retention. The builder's cash flow will move on. And if that retention is sitting there and it's for the taking, and for some reason the relationship sours, it is typically the low-hanging fruit that we see happen. So I just want to make sure I covered off on what I was going to talk to you about.
MICHELLE CIRSON (37:49.336)
So, in terms of statutory defects liability periods, I did also want to mention to you that around the country we have different
Defects liability periods for structural defects and non-structural defects. But there are also other defects liability periods or liability periods where they call them long stops for particular types of negligence and types of negligence, for example, that relate to building defects. So it's a little bit interesting that construction contracts have these 12-month defects liability periods or two-year defects liability periods.
When really in truth, in the background, building legislation will kick in and mean that you are actually responsible for a longer duration of time. So those defects liability periods in contracts typically only need to exist because retention needs a milestone to be released upon. So if we go removing cash retentions from construction contracts.
Subcontractors need to realize that the need for a contractual defects liability period might just disappear from construction contracts as well. And you could be getting calls from your builder for six years to come back and do things that you might have otherwise been able to say, Hey, defects liability period. That's not a building code compliance issue, that could be a maintenance issue or something like that. So it's more than just whether or not
retentions should it exist in construction contracts. Hopefully this has come across in a way that has helped you guys understand that there's far more to it than just cash retentions. Yes, that is the symptom. That is a major problem. It affects
MICHELLE CIRSON (39:36.237)
Building disputes everywhere, the cash flow of the industry is affected by retentions. However, you can't just band-aid that one thing and expect that things will get better. In fact, things could get far worse, and it does concern me when legislators go down rabbit holes like we've just seen with the Australian budget and dream up novel ways to fix problems that can have massive consequences for businesses. So that's it from me on this one. The next podcast i'm
Doing is actually about pay when pay clauses, in particular, whether or not the builder can hold your retention for the period of time under the head contract. So if this was of interest to you, tune into my next episode. we are dropping fortnightly podcasts. So hold the phone if you are hanging out next week. weekly is just a little bit too much for me to handle, so we're gonna go back to fortnightly podcasts.
