NZS 3910 §12 progress payments and §17 retentions on NZ residential (2026 guide)

sp8002
May 30
8 min read

§12 of NZS 3910:2023 sets the progress-payment machinery; §17 sets retentions. Both interact with the Construction Contracts Act 2002 and the Retentions Trust amendments. Miss the §12.2 payment-claim deadline by a day and the claim becomes contestable for thousands.

By Steve Parker · Trueworks · NZ construction estimation · 7 min

§12 governs the rhythm of money on a head contract — claim, schedule, payment, certificate. §17 governs the slice held back as retentions, now sitting in a trust account by force of the 2023 amendments. Both sit alongside the Construction Contracts Act 2002 mandatory payment regime. Reading the three together is the only defensible position.

By Steve Parker · Trueworks · NZ construction estimation · 7 min

What you'll learn in this post

What §12 and §17 actually require on a NZ residential head contract
How the payment-claim / retentions process fails in practice
The 5-item check before issuing or paying a progress claim

Quick answer: NZS 3910:2023 §12 sets out progress-payment procedure — claim, schedule, certificate, payment. §17 sets retentions — historically 10% on the first half of the contract, halving to 5%, plus release on practical completion and defects-liability expiry. The Retentions Money Amendment Act 2023 now requires retentions to be held in a trust account or on an acceptable instrument. The interplay between §12, §17 and the Construction Contracts Act 2002 is where the disputes live. Miss the §12.2 payment-claim response window and the unpaid sum becomes a Construction Contracts Act debt.

NZS 3910:2023 §12 and §17 govern the two cash-flow questions every residential head contract has to answer: when does money move, and how much does the Principal hold back as security against defects. The clauses look procedural. The consequences are not.

This post reads §12, §17 and their interaction with the Construction Contracts Act 2002 and the Retentions Money Amendment Act 2023 — and identifies the procedural failures that turn payment cycles into adjudications.

What §12 actually says

§12 of NZS 3910:2023 is titled "Payments". It sets out the procedure for periodic progress payments, the schedule of payments, and certification.

§12.2 — payment claims

§12.2 requires the contractor to submit periodic payment claims. A claim must:

Be in writing
State the amount claimed
Reference the work the claim relates to
Be supported by the contractor's calculation of value of work completed

Most residential head contracts under NZS 3910 run a monthly claim cycle, with the claim date set in the contract particulars.

§12.3 — Engineer's payment schedule

The Engineer assesses the claim and issues a payment schedule under §12.3. The schedule:

States the amount the Engineer certifies as payable
Identifies any items disputed or downward-adjusted
Provides reasoning for any difference between claimed and scheduled

Critically, the §12.3 schedule must be issued within the timeframe set by the contract particulars, which dovetails with the 20-working-day default under the Construction Contracts Act 2002.

§12.4 — payment

The Principal pays the scheduled amount under §12.4 within the contractual payment window. Late payment exposes the Principal to suspension of work under §12.5 and to summary debt recovery under §23 of the Construction Contracts Act 2002.

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What §17 actually says on retentions

§17 of NZS 3910:2023 governs retentions. The default position under the standard contract:

Retentions of 10% are deducted from each progress payment until retentions equal 5% of the contract sum
After that point, retentions deductions drop to 5%
Half the retentions release on Practical Completion (§9)
The remaining half release on expiry of the Defects Liability Period (§10)

The Retentions Money Amendment Act 2023 overlay

This is the big change. The Retentions Money Amendment Act 2023 (in force from October 2023) requires:

Retentions to be held in trust on commercial construction contracts above the threshold
A separate trust account or acceptable instrument (such as a bond)
Reporting on retentions held to the contractor at defined intervals
Personal liability on directors for non-compliance

The Act applies to commercial construction work and to residential work that meets the statutory threshold and is not "domestic dwelling" work for an owner-occupier. The practical effect on NZ residential head contracts above $250k built for developers or owner-investors is the Act applies, and §17 has to be read alongside it.

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How §12 / §17 fail on NZ residential builds

1. The Engineer misses the §12.3 response window. The Construction Contracts Act 2002 default is 20 working days from receipt of the payment claim for the response (the §12.3 payment schedule). Miss the window and the claimed sum becomes payable as scheduled. The Principal has no defence under the Construction Contracts Act except summary recovery in court. On a $180k monthly claim with a single missed §12.3 schedule, the exposure is the full claimed amount, less any later set-off the Principal can prove.

2. Retentions held without compliance with the 2023 amendments. The Principal holds 10% in their working account, not in trust. The contractor files complaint with MBIE; the directors face personal liability under the amended Act. On a typical residential project running $90-150k in retentions through the build, the exposure to the Principal's directors is material.

3. Practical Completion certificate delayed, retentions release delayed. §17.5 releases half the retentions on Practical Completion. If the §9 PC certificate is delayed because of minor outstanding work, the retentions release is delayed with it. The contractor's cash flow is exposed for the gap — typically $30-60k on a residential build. Disputes about whether PC is achieved are common.

The reference table

| Step | Clause | Default timeframe | Common failure | |---|---|---|---| | Contractor submits payment claim | §12.2 | Monthly per contract | Claim lacks supporting calculation | | Engineer issues payment schedule | §12.3 | 20 working days (CCA default) | Schedule issued late — claimed sum payable | | Principal pays scheduled amount | §12.4 | Per contract (often 10-20 days from schedule) | Late payment — interest accrues, suspension grounds | | Retentions deducted from each payment | §17.2 | 10% to halfway, then 5% | Held in working account, not in trust | | Half retentions released on PC | §17.5 | On §9 certification | PC delayed by minor items, release delayed | | Final retentions released | §17.6 | Expiry of DLP under §10 | Defects unresolved, release contested |

Worked example

A $1.85M residential head contract under NZS 3910:2023. Monthly payment claim cycle. The contractor submits the month-9 claim for $165k on the contractual claim date. Total retentions held to date: $84k.

The compliant version: the Engineer issues the §12.3 payment schedule within 15 working days, certifying $158k payable (with a $7k reduction for a disputed variation valuation). The Principal pays the $158k within the contractual window. Retentions on this claim ($8k) are paid into the trust account by the Principal within 10 working days as required by the 2023 amendments. Trust account statement issued to the contractor.

The non-compliant version: the Engineer is overloaded, doesn't issue the §12.3 schedule. Twenty-one working days later, the contractor's claimed $165k is payable under the Construction Contracts Act 2002. The Principal scrambles, raises a counterclaim, but the contractor files for adjudication. The $7k variation dispute, which could have been resolved in a schedule, becomes a $15k adjudication. Plus the retentions on month-9 sit in the working account rather than the trust account — a separate compliance breach.

What to check before issuing or paying a progress claim

Five items, every time:

The §12.2 payment claim is on the file in writing with a supporting calculation
The §12.3 payment schedule is issued within the Construction Contracts Act window (20 working days default, or shorter per contract)
The retentions sum is correct under §17.2 — 10% to halfway, 5% thereafter, against the actual progress
The retentions are in trust under the 2023 amendments if the project meets the statutory threshold
The certification of Practical Completion under §9 is unambiguous when claimed — partial-PC arguments are the most common retentions-release dispute

If those five items are clean, the payment cycle is defensible. If they're not, the next person reading the file is an adjudicator under the Construction Contracts Act 2002.

FAQ — NZS 3910 §12, §17 on NZ residential

Q1: Does the Retentions Money Amendment Act 2023 apply to a residential build for an owner-occupier? The Act's application turns on whether the head contract is "residential construction work" as defined in the Construction Contracts Act 2002. Residential work where the owner is occupying or will occupy the dwelling is generally excluded from the retentions trust requirement. Speculative residential, build-to-rent, and investor-developer residential work generally falls inside the Act. Check the contract particulars.

Q2: What happens if the Engineer issues no §12.3 payment schedule at all? Under the Construction Contracts Act 2002, the full claimed amount becomes payable. The contractor can serve a notice under the Act and pursue summary recovery in court if not paid. The §12.3 schedule is the only document that limits the Principal's exposure to the claimed sum.

Q3: Can retentions be held against a single defective work item indefinitely? No. §17.6 ties the final retentions release to expiry of the Defects Liability Period under §10. Disputes about specific defective items are managed through the §13 dispute process, not by indefinite withholding of the full retentions sum.

Q4: What's the contractor's remedy if the Principal pays late? §12.5 of NZS 3910:2023 allows the contractor to suspend work for non-payment after issuing the required notice. The Construction Contracts Act 2002 §24 provides parallel statutory suspension rights. Interest under the contract applies on the unpaid amount.

Q5: Are retentions deductible from the GST-inclusive or GST-exclusive value of work? Standard practice is retentions deducted from the GST-exclusive value, with GST applied to the net certified sum. The contract particulars set the answer. Misreading this on a $2M head contract puts a $20-30k GST error on the file.

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