For those institutions carrying out building projects at the moment the recent news that the holding company of Currie & Brown was in administration at the time of its acquisition by Middle East-based consultant Dar Group raised fresh concerns that there may be more victims of this period of economic instability. The insolvency of a consultant can be as harmful to a project as that of the main contractor. Well-drafted documentation is essential to protect an employer, as is ensuring that all requests for payment are justified.

The recent news that the holding company of Currie & Brown was in administration at the time of its acquisition by Middle East-based consultant Dar Group raises fresh concerns that there may be more victims of this period of economic instability.

An English rugby club (an unincorporated association of its members) engaged the services of Barnes Webster & Sons (BWS), a construction company. The club’s treasurer signed the contract, which was witnessed by Davies, the club’s president. The club agreed to pay BWS a fixed price plus additional amounts for certain variations in the work, should they arise. The variations were required, but the club did not pay the £147,000 bill for them that BWS presented. BWS made a demand on Davies personally, which he moved to set aside.

According to the credit insurer, Euler Helmes, there were more insolvencies in construction than in any other sector during the first six months of 2011.

Where an insolvency affects consultants and contractors mid project then clients will be concerned about the possible ramifications for their projects.  What are some of the key considerations for a client in this scenario.

Insolvency of your client or customer is bad news, even if, these days, it comes as no surprise.

Section 113 of the Housing Grants, Construction & Regeneration Act 1996 (the 1996 Act) outlaws pay when paid provisions, with one exception. It is permissible for a Contractor to use a pay when paid provision to deny payment of outstanding amounts due to its Sub-contractor where the Client at the top of the supply chain has gone bust. The general consensus is of course that this exception is unfair. It is essentially asking the Sub-contractors to act as insurers of both the main Contractor and Client insolvency.

A late October 2010 case Straw Realisations v Shaftsbury House illustrates the courts’ approach to technical and insolvency-based challenges regarding enforcement of adjudicators’ awards. Given the current spate of contractor insolvencies and popularity of adjudication, any trust facing an adverse adjudicator's decision in favour of its contractor should not pay without due consideration.

The cuts revealed in the Comprehensive Spending Review have not been quite as bad as the construction industry had apparently been expecting (£3.5 billion not as bad). Nevertheless there have still been billions of pounds shaved off various departmental budgets which will affect the construction industry. Where public spending has in the past been a reliable source of income, some companies are inevitably now going to feel the effect of the cuts.

Building services and maintenance contractor Rok was placed into administration in early November. Administrators from PWC are looking for a buyer for the self styled “nation’s local builder”. The move comes just weeks after the administration of its rival Connaught which led to 1,400 redundancies. Rok’s 3,800 employees will be understandably very concerned as will Rok’s customers/employers, many of whom are in the public sector.

Parent company guarantees and performance bonds are typically used in the construction and engineering industries to provide a developer with some security in the event that the contractor breaches the building or engineering contract or, in some circumstances, upon the contractor's insolvency.

In the current economic climate, contractor default is, unfortunately, even more prevalent in the construction and engineering industries, and so the issues surrounding parent company guarantees and performance bonds are very much in focus for developers.