Concern about sub-contractors facing financial uncertainty after Mainzeal collapse

Press Release: Specialist Trade Contractors’ Federation
The Specialist Trade Contractors’ Federation (STCF) has warned that the 400 Mainzeal staff affected by the firm’s collapse is just “the tip of the iceberg”. STCF president Graham Burke said there was likely to be three or four times that number of sub-contractors working for the company and now facing financial uncertainty.

He called for receivers PwC to provide assurances that sub-contractors will be treated equitably and that retentions which have been held by Mainzeal will be paid out.

Construction firms often hold up to ten per cent of a sub-contractor’s total invoice as a retention, without interest, for up to two years after the completion of a contract by way of a guarantee.

“While the Mainzeal staff, Inland Revenue, banks and finance companies will be the first to be paid out, sub-contractors are treated as unsecured creditors,” said Mr Burke.

“When Hartner collapsed in 2001 it was holding millions in retentions, the amount held by Mainzeal could run into tens of millions.

“The STCF has been lobbying for the introduction of a binding security of payment for sub-contractors. We are seeking assurances from PwC that Mainzeal sub-contractors will be treated equitably regarding payments owed to them and that retentions, which have been paid by the client, will be paid to the sub-contractors, who have provided the materials and labour and carried all the risk.”

Mr Burke said that some sub-contractors would be owed significant sums and, if they were not paid, that could make their own businesses insolvent.

“Potentially, if sub-contractor businesses start to go under because of this, it could create a ripple effect up and down the chain because they then may not be able to pay the smaller sub-contractors working for them, even those not working on Mainzeal sites.

“Also, if sub-contractors with large exposure to Mainzeal have to be wound up and can’t complete jobs they are working on for other construction firms, then those companies may struggle to find new sub-contractors willing to complete the work at historic rates.

“That makes it all the more important that the receivers act swiftly to provide answers for sub-contractors and some confidence for the industry.”

Mr Burke said that the STCF is also concerned that the issue of security of payments for sub-contractors is not reflected in amendments to the Construction Contracts Act which is due to go through the Bill process.

The Specialist Trade Contractors’ Federation is an umbrella group representing the interests of specialist trade contractors in New Zealand.

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