What to do if your contractor is in financial difficulty

Louise Garcia

Louise Garcia sets out the considerations, options and precautions a client can take if a main contractor’s finances look wobbly

You are partway through your shiny new hotel/restaurant/leisure project, and your main contractor looks like it might be in financial difficulties: work is not progressing to programme, despite weekly project meeting promises; supplies are not being delivered to site (or, worse still, are disappearing from site), and there seems to be a general lack of subcontractor activity. Rumours abound that your main contractor is in trouble. Trouble is contagious.

If your contractor is in financial difficulty, consider your position:

  • Self-funding? You risk losing revenue from the delay to opening.
  • Relying on contractual liquidated damages? On insolvency, you will rank far below secured creditors; you may not see more than a few pennies in the pound.
  • Funded? That’s more worrying; you have upstream obligations and may be in breach.
  • Got a tenant lined up? When’s the longstop date to complete? There will be significant financial consequences for breaching that date.

Taking early steps to assess the risks and take action now can limit the damage later.

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