When a Major Contractor Collapses: Lessons From Carillion

by | Jan 16, 2018 | Contract Administration and Major Works

On 15 January 2018 Carillion, one of the largest construction and services companies in the country, went into compulsory liquidation, and the Official Receiver was appointed. Hospitals, schools, roads and public services were affected, and so were the many subcontractors and suppliers further down the chain. Owners with a project on site may well have asked how exposed they would be if their own contractor failed.

Insolvency is not only a big company problem

Most of the projects we see are let to small and medium sized contractors, and the same risks apply to them. Construction runs on tight margins and cash flow, and a contractor can be busy right up to the day it stops trading. The protection has to be built in before work starts.

Before you appoint

  • Check financial standing. Look at published accounts, credit checks and references, and be cautious if a tender is far below the others.
  • Consider security. On larger projects a performance bond or a parent company guarantee may be worth its cost.
  • Use a recognised contract. JCT forms set out what happens on insolvency, including the right to end the contractor’s employment and recover extra costs.

While work is on site

  • Never pay ahead of the work. Valuations should reflect work properly done and materials on site, not the contractor’s cash needs.
  • Keep the retention. It is a buffer against defects and, in an insolvency, against the cost of completion.
  • Be careful with materials off site. Only pay for them where ownership passes to you and they are clearly identified, insured and set aside.
  • Watch for warning signs. Fewer people on site, unpaid subcontractors and requests for early payment all deserve attention.

If the worst happens

  1. Secure the site and the building, and check the insurance position at once.
  2. Record the state of the works with photographs and a measured valuation.
  3. Take advice before paying anything further, or before dealing directly with subcontractors.
  4. Plan the completion, which usually means a new tender for the remaining work.

Our Contract Administration service builds these protections into every project. See how we administered a contaminated site redevelopment of 13 new homes.