Unfortunately, due to the current poor economic climate, there seem to be continuous news reports of developers going into administration and liquidation.

 

Contractors employed by a developer who has gone bust are advised to immediately check out the contract terms, to ensure they take the necessary steps to maximise the chance of recovering the monies due. Most standard construction contracts contain a clause which states the contractor must prepare an account which sets out the following:

-                     value of works completed at time of valuation

-                     removal costs

-                     cost of materials and goods

-                     loss and expense claim

 

Unfortunately, it is most likely the contractor will simply join the list of unsecured creditors and at the end of the insolvency procedure, if any money does become available it is likely to be a small percentage of what is owed.

 

However, this is not always the position. If the developer goes into administration, it is often the case that the administrator will decide it is in the creditors best interest,  either to complete the project or at least to make the building watertight, so as to maximise or preserve the value of the property.

 

The administrator may either seek to negotiate a new contract for these works or may appoint a LPA Receiver to step into the existing contract. There may well be a sticking point regarding the unpaid balance due to the contractor. In this situation the contractor can put itself in a strong negotiating position by being able to offer seamless warranties regarding the works, along with the knowledge and experience of the project in exchange for payment of the outstanding sums along with agreements in place for payment for future works.

 

Our advice is to open the lines of communication up at the earliest opportunity with the administrator. Introduce yourself and your team and advise the administrator of the benefits of having the building works completed. This may not always be obvious but creditors would certainly appreciate the initiative if it will add value to the bottom line.

 

The contractor should ensure they obtain financial protection before they enter into any new contracts. Contractors are advised to obtain payment for the value of the work completed, along with advance payments and agreements regarding the payment for materials on delivery. If this sort of financial agreement can be negotiated, it is a viable way for the contractor to get out of a potentially costly situation relatively unscathed.