So, here's a guide to the pre-emptive action a contractor can take, either while negotiating the contract or during its lifetime …
In addition, the you should consider some general business issues. Does the project makes commercial sense? Has it been pre-let or pre-sold? Who are the funder or funders and what are the terms of their finance? Finally, do the people on the other side of the table look like they know what they are doing?
Nobody enters a contract believing insolvency will happen– but it does. Be aware of it from the start and be alert when you see the signs
First, you should establish rights of set-off and exercise them, or give early notice of the intention to do so, and check that retention cash has been placed in a separate trust account. If it has not, insist upon that happening immediately.
Next, ensure that all invoices have been rendered and payment made, and if not, hassle the employer. If effective and appropriate, you could even serve a statutory demand or winding up petition for your money. If the contract permits, you could consider downing tools or withdrawing from site.
From a practical point of view, ensure that all high-value materials are brought to site only if necessary and if clearly tagged and identifiable. The contractor could reduce or slow down work where possible, but not so as to place them in repudiatory breach and/or contractual default.
On a practical level, you should maintain a site presence to avoid being in breach of contract – and also to keep an eye on what is happening. You must also clarify your contractual position – for example, rights of determination and suspension of works. Invoices will need to be up to date and all materials on site, off site and any uncertified work in progress will have to be valued. You should estimate how much it would cost the insolvency practitioner to complete the project or to mobilise an alternative contractor.
Insolvency will have a knock-on effect on subcontracts, so you should establish whether a right to determine those subcontracts has arisen, what the effect of such determination would be, and the impact of insolvency on your own payment obligations.
Alison Cull is a senior associate at Masons specialising in insolvency law.