The collapse of ISG recently – the sixth largest construction firm in the UK by turnover - is the highest profile construction insolvency since Carillion six years ago and there will be a knock-on effect on smaller companies in the supply chain. The firm was involved in 69 Government contracts and there may now be a slowing down in existing prison and education projects. ISG was working reportedly on around 2% profit margins and sub-contracted most of its work.
There have been a number of insolvencies in the South East over the last 18 months, including East Sussex-based Westridge Construction Ltd. It reportedly had numerous trading difficulties, including supply chain insolvencies and higher supplier and sub-contractor costs resulting from inflation. The construction industry saw more companies become insolvent than any other sector last year with 4,371 building firms collapsing in England and Wales.
Contractors and sub-contractors can protect their position against employer insolvency with contract provisions - which can include an escrow account, weighted stage payments, advanced payment, a project bank account and direct payment by a funder. Retention bond or retention trust account could be negotiated and specific clauses allowing termination on insolvency. The statutory right (and usually contractual right) to give notice of intention to suspend performance in the event of non-payment should be borne in mind.
Contractual clauses giving the contractor the right to suspend performance and/or terminate the contract upon the employer entering insolvency will be subject to the amendments to the Insolvency Act 1986 introduced by the Corporate Insolvency and Governance Act 2020.
During the course of the contract, it is important for contractors and sub-contractors to monitor the employer’s behaviour for signs of impending insolvency, to invoice regularly and completely, comply strictly with the Building Contract provisions and consider starting adjudication before the employer goes insolvent. Warning signs, such as rumours about the employer’s financial position, repeatedly late payment to the contractor/contractors on other projects, unexplained or unexpected omissions from the project, late filing of accounts or annual returns at Companies House and unsatisfied judgments should all be causes for concern.
If you wish to discuss this further, please do not hesitate to contact David Brown by email: dcb@cooperburnett.com or tel: 01892 515022
This blog is not intended as legal advice that can be relied upon and CooperBurnett LLP does not accept any responsibility for the accuracy of its contents.
This blog was originally published in the Tunbridge Wells Business Magazine: https://twbusinessmagazine.com
