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Posted September 30, 2022 | Published in Contracts & documentation

Insolvency of the main contractor: 15 top considerations for the employer

Having acted for employers on four projects in the past year where the main contractors have become insolvent, here are my 15 top actions for employers to consider when faced with main contractor insolvency.

  1. Determine if termination is appropriate: is the main contractor insolvent? Carefully follow the contractual termination procedure.
  1. Following termination, employers should take reasonable measures to ensure the site, works and materials are adequately protected.
  1. In addition to securing the site, the employer needs to ensure the site is safe (compliance with obligations under the Construction (Design and Management) Regulations 2015).
  1. Carry out a comprehensive audit of all of the plant, materials and documents on the site, and any off-site materials, in order to determine ownership.
  1. Request the assignment of the supply of materials or goods and/or for the execution of any of the works for the purpose of the contract (subject to such being assignable).
  1. Request copies of all the design documents (whether or not previously provided), subcontracts, collateral warranties, and other supply agreements.
  1. Check the documentation provided is up to date (e.g., health and safety records, drawings, test certificates, manufacturers’ warranties etc.).
  1. Where the employer decides to appoint a third party to take over the works, it is important to keep a comprehensive record of decisions to appoint new contractors and the costs incurred for the final account process.
  1. The employer can issue a pay less notice within the prescribed timeframe to suspend payments to the main contractor.
  1. Check the funding arrangements with developers, as they will need notice of the situation.
  1. Instruct a quantity surveyor to undertake an audit of the site and prepare a detailed valuation of the works at the time of termination.
  1. Keep adequate records of the works following termination so as to update the administrators of the costs accrued and additional costs incurred up to the date of completion.
  1. Responsibility for insuring the works is now the employer’s obligation, so employers should seek to get adequate cover for the works following the termination.
  1. As for claims, employers should keep in mind that some policies operate on a claim made basis. Any claims against the main contractor will need to be made before the end of the contractor’s insurance policy period.
  1. Debt recovery, unless there is a performance bond to call on, or retention money to set-off against, the additional cost incurred by the employer in completing the works will be difficult to recover. Retention and bonds offer the easiest route for recovery. Therefore, employers should check the bond hasn’t expired and the wording of the bond to enable the employer to bring its claims. Also submit a proof of debt in the insolvency.

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