In the construction industry, contractor insolvency delays projects, increases costs and may deprive the employer of remedies and third parties of meaningful warranty protection. In 2008, it was reported that the number of construction firms facing grave financial concerns was 547 per cent higher than in 2007 (Building, 14 November 2008). As contractor insolvencies are likely to increase in 2009, how can an employer protect its position at the start of a project and when contractor insolvency occurs?  

Contractual safeguards  

Branch Banking & Trust Co. v Construction Supervision Services, Inc. (In re Construction Supervision Services, Inc.), 753 F.3d 124 (4th Cir. 2014) –

Reshetar Systems, Inc. v. Thompson, 686 F.3d 940 (8th Cir. 2012) –

Lain v. V3 Construction Group Ltd. (In re Erickson Retirement Communities, LLC), 475 B.R. 762 (Bankr. N.D. Tex. 2012) –

The trustee of a liquidating trust under a general contractor’s confirmed chapter 11 plan tried to recover pre-petition payments made to a subcontractor as either a preference or a fraudulent conveyance.  The court’s decision turned on whether the payments were trust funds under the Illinois Mechanics Lien Act.

Johnson Memorial Hospital, Inc. v. New England Radiator Works (In re Johnson Memorial Hospital, Inc.), 470 B.R. 119 (Bankr. D. Conn. 2012) –

GII Industries, Inc. v. New York Dep’t of Transp. 2011 Bankr. LEXIS 3663 (Bankr. E.D.N.Y. Sept. 30, 2011)  

The Bankruptcy Court for the Eastern District of New York considered the appropriate method for calculating a contractor’s inefficiency damages and whether the contractor was entitled to prejudgment interest in connection with a highway reconstruction project. The Court held that the total cost method was the appropriate manner by which to calculate damages and that the contractor was entitled to prejudgment interest running from the date final payment was due.

WTE-S&S AG Enters., LLC v. GHD, Inc., 2017 Bankr. LEXIS 2343 (Bankr. N. D. Ill. August 18, 2017)

In re: Linear Electric Co., Inc., No. 16-1477, 2017 U.S. App. Lexis 5527 (3d Cir., March 30, 2017)

In re Mississippi Valley Livestock, Inc., 745 F.3d 299 (7th Cir. 2014) –

A debtor sold cattle for the account of a cattle producer and then remitted the proceeds to the producer.  A chapter 7 trustee sought to recover the payments as preferential transfers.  The trustee lost in both the bankruptcy and district courts, and then appealed to the 7th Circuit.

New Bern Riverfront Dev., LLC v Weaver Cooke Constr., LLC (In re New Bern Riverfront Dev. LLC), 521 B.R. 718 (Bankr. E.D.N.C. 2014) 

The debtor made claims against a surety that issued a performance bond in connection with a construction contract.  The surety contended that it was not liable for the consequential damage claims.