Navigating insolvency consequences

Insurance failure

A contractor’s insurances typically become ineffective when it enters administration, leaving sites unprotected and uninsured. Furthermore, any third-party claimants may be forced to rely on statutory provisions to access a contractor’s liability policy. Existing claims prior to insolvency may be less affected, however, employers should ensure that contractors have notified any claims to their insurers as the policies will likely be cancelled by any insolvency practitioner.

Balance sheet risk

Without insurance, an employer’s/financier’s investment is unprotected and the risk of loss or damage to the partially completed works falls on the employer’s/ financier’s balance sheet. Furthermore, replacement of the contractor will likely raise the final contract value and practical completion delays will defer any
subsequent revenue streams.

Increased risk profile

Unoccupied sites are vulnerable to loss, especially where there is no security presence. Partially completed works and any plant in situ are now vulnerable to increased exposures including weather, arson, theft and malicious damage. These sites are also vulnerable to trespass; increasing liability threats to site owners and potential reputational damage.

Defects & warranties

Patent and latent defects arising from the original works may be difficult to assess, costly to remedy and possibly uninsured, thus bringing difficulty to any new contractor to offer a guarantee for completed works.