In a post-Carillion world, the spectre of insolvency can haunt a project. Research by the Insolvency Service immediately after the contractor's collapse indicated that the rate of UK construction insolvencies rose by eight per cent in 2016/17, with more than 2,600 such companies becoming insolvent.
But steps can be taken to avoid an unfinished project, a building riddled with defects, no security for the developer's cross-claims, and an unhappy client looking to blame the contract administrator.
Any of the following may indicate that your client's contractor is in difficulty:
At this early warning stage you should exercise caution and establish whether your concerns are correct, as mistaken allegations will erode trust. Gather all relevant information, particularly about payment and value of works – if the contractor is teetering on the edge, denial of cash flow may result in the unwanted distraction of adjudication or push it into insolvency.
If you suspect insolvency is impending, your client will be looking to you to help assess the situation. Do you advise it to terminate the contract, or think about ways it can encourage and help its ailing contractor finish the project?
The following factors ought to be taken into account.
If you have immediate concerns, you will need to:
Where there are defects, analyse whether your contract allows your client to engage others, should your instructions about the same be ignored. Ensure you meet any deadlines in such a scenario. This can be an effective strategy, especially if the contract provides that the contractor will be liable for all extra costs incurred by the client in connection with any such engagement.
A composed approach, taking into account the steps above, may not wholly avoid a tricky period for the project. But protecting your client's position and offering practical advice during this time is unlikely to go unnoticed. You'll be rewarded, as calm heads are welcome in any team.
Daniel Hutchings is a senior associate, Taylor Wessing firstname.lastname@example.org
Related competencies include: Contract administration, Works progress and quality management