The current economic conditions mean great uncertainty for all areas of business and none more so than the construction industry. There have definitely been fewer building projects starting this year compared to previous years and it seems most practitioners are not optimistic that the situation will be markedly better next year. There was a spate of insolvencies at the tale end of last year, immediately after the credit crunch. The numbers have fallen back throughout this year but commentators expect an increase next year as some companies that have hung on run out of funds as projects finish and are not replaced or frameworks end and are not renewed.
Times are tough and will probably remain so, but there are projects going ahead and orders being placed. So here are some recommendations to help you keep your head above water, stay in business and be ready to take advantage of the up-turn when it happens; -
Take measures to guard against the effects of insolvency of others you are working with
This economic downturn has shown us that every party involved in a project may experience financial difficulties - even the once inviolate funder! You need to look both up and down the supply chain to guard against the effects of other parties' insolvency. Unsecured creditors get an average of 1% of their proved debt. Don't let this be you! There are ways to minimise your exposure to possible non-payment, such as:

• Satisfy yourself that the project is being funded from a secure source. Has a sensible funding margin been allowed for contingencies and variations?


• Insist on a payment structure that covers costs as you go along. Don't accept delayed payments or payment only on completion.


• Increase the frequency of interim payments and decrease the time allowed between certification and the final date for payment, which will all assist good cash-flow.


• Insist on the right to claim advance payments where you have to place orders and commit funds early for plant, equipment, materials or specialist sub-contractors.


• Consider using a project bank account, i.e. where the employer maintains adequate funds in a special account to cover work in progress and other project commitments. The arrangements must make it clear that monies in the account are to be used to pay the supply chain in the event of employer insolvency and only once project liabilities have been cleared can any residue be claimed by other creditors.

When work is scare there is a very natural tendency to accept almost anything that is on offer - regardless of the consequences. Remember this could lock you in to onerous conditions that can have a detrimental effect on your business and may hinder you from taking advantage of other opportunities and the eventual economic upturn. Steer clear of consultancy agreements which include harsh or oppressive requirements, such as

• "time is of the essence" clauses;


• fitness for purpose warranties relating to design (which are uninsurable);


• performance bonds or parent company guarantees to be given by consultants;


• excessively long payment periods and very low interest rates on late payments;


• a fixed liability for damages arising from delay to completion regardless of fault


• becoming the "back-stop" for damages for delay which the client cannot recover from the contractor;


• an obligation to accept any variation or addition to the services or the terms of appointment even if the variation is to your detriment or outside your competency;


• provisions that allow the client to recover from you losses or damages which in his sole opinion arise from your breach - rather than being established on a reasonable or objective basis.

You think the above are unlikely or ridiculous? Well, I have seen evidence of them and from some unlikely clients. I have also had to advise consultants who have signed up to appointments containing such conditions without even reading them. The harsh reality is that partnering is not such a popular concept at the moment and my best advice is to keep your eyes and ears open and take sensible measures to protect your position. Clients that impose unreasonable conditions at the outset are likely to get even more unreasonable if a problem arises. Work is not always worth having if the cost to your business and your blood pressure is too high!
If you have any construction queries and would like to speak to Pam please telephone 0116 247 3500 or email pam.allardice@howespercival.com