It is fair to say that the insolvency of Carillion has sent shockwaves through the construction industry. While this may be the catalyst for change, insolvency has unfortunately been a risk which has been realised all too often.
Looking at the current position, we set out the top ten issues that employers, professionals and the supply chain should consider in the event of main contractor insolvency.
- Payment cycle _ check where in the payment cycle you are. Are there interim payments due? There are limited saving provisions under the Construction Act in the event of insolvency;
- Security _ check the terms of any bonds or guarantees which have been granted. Are they valid? Do they respond to insolvency?I Insolvency may not be treated as a default depending on how the bond or guarantee is drafted. What is the process for making a valid call?
- Termination provisions _ check what the contract says about termination. What is the process? Do notices require to be issued? What is to happen to materials and equipment on site?
- Status of the works _ accurately record and document the status of the works on the date of insolvency. This will be relevant to calculating what works remain to be carried out and what the entitlement to payment due to or by the main contractor is;
- Completing the works _ how are the works to be completed? What form will the completion contract or contacts take?
- Defects _ accurately record and document any defects which are discovered and the costs incurred for making good;
- Final account _ check what the contract says about preparing a final account. When should this be carried out and what is the process?
- Step-in rights _ check if the contract makes provision for step-in rights, where a party may have the right under a contract to take the place of the main contractor.
- Making a claim in the insolvency _ is a claim to be made and what is the process and timing for that?
- Insurance _ check any insurances which are in place and if they will respond to insolvency.