You receive a call from the project manager for a new student accommodation project under construction.
The contractor the university engaged to build the project went into administration the day before. A sub-contractor is on site and is tearing out all of the air-conditioners that the university has already paid for. The project manager wants you to tell her how she can stop them.
What do you do?
At 5.00am, unfortunately, not much. But there are things that could have been done before that time and after it to make sure the university is as well protected as it can be.
The best protection against insolvency is choosing the right contractor.
Carry out your due diligence on the contractor’s financial status before they are awarded the contract.
Second, make sure the contract provides the university with the right to investigate for warning signs throughout the project. For example, if the contractor is obliged to provide a detailed statutory declaration and evidence of subcontractor payments, a failure to provide that declaration will give you an indication that all is not well.
Third, make sure the contract gives the university the right to take action quickly if warning bells are ringing. For example, it’s almost always the case that contractors who ultimately become insolvent do so when they are already in breach of contract, normally because work is very delayed as the result of under resourcing. If the contract allows you to appoint a new contractor early, less time and cost is wasted.
Fourth, particularly for larger projects, make sure the contract provides the university with a robust security package which will compensate the university for any loss it suffers. At a minimum, up-front bank guarantees should be provided by the contractor. Make sure they don’t have an expiry date – or you might find they have expired before the university is entitled to call on them.
Retention monies won’t provide the same security, particularly when the insolvency occurs early in the project.
Finally, where possible, don’t sign a contract which requires the university to pay for equipment that is not yet fixed to the site without taking additional security. Otherwise, it won’t just be the few air-conditioners which were removed from the site that might need to be paid for twice – it will be those which never made it to the site at all.