The Contractor goes belly up - so what is a client to do? Its a problem. You are left at the alter after having had such high hopes for a happy future. You thought that you were together for better or for worse. The contract to a certain extent will tell you what you can and cannot do i.e. a sort of pre nuptial dealing with termination and payments however some of the more practical issues to think about includes warranties, defects, payment, site, plant, bonds, subcontractors and form of insolvency:
Warranties for design - were they executed what is the status of design and what is left to be done and is the design any good?
Defects - a thorough inspection and take plenty of photographs, what also about latent defects?
Payment - accurate valuation so that you don't overpay those that abscond and know for sure what extra its going to cost you (there may be untold liabilities)
Site - secure it & make an inventory of what is left just in case Contractor his creditors or supply chain decide to break-in, yes it happens!
Plant - what is owned or hired you can retain the Contractors owned plant & equipment
Guarantees - is there a parent company guarantee to call on depends if the insolvent company is a subsidiary or not. In some cases the parent company may want to finish off the work?
Retention- what is held? No need to release it to the Contractor just yet it may come in handy
Bonds - can you call-in any bonds for performance which may be conditional or on demand or perhaps there is a bond for advance payment (such as materials off site already paid for)
Subcontractors and suppliers - are they owed money? Talk to them and find out where they stand - they may co operate but often it depends how much they are owed by the Contractor?
Materials - do you have title to the goods that have been left on the site, has it passed to you or does retention of title clauses in various subcontracts cause you difficulty and what about goods off site if they are not clearly marked and or vested?
Insolvency - what is the position in terms of debtors/creditors is the company bankrupt, is their an arrangement with creditors or is the company in administration?
Yes I am afraid that it all has a bearing................
I once advised a client on this same situation for an office block. The Contractor had finished the structure (just about) but had not started the fit-out works. Defective works and design issues (relating to poor Consultant design) were the most difficult issues to sort out. Warranties and bonds were useful provisions in the contract that (even if not called for) tended to focus the mind.
"You thought you were together for better or for worse"
So how do you get the job finished I hear you ask? I suggest that a client considers all the procurement options and assesses the risk. Look at the pros and cons - long and hard. If you want a quick start and to minimise cost (aiming for lower overhead and or or fee) I would think about open book with use of a target with fit-out let as works packages. Its not everyone cup of tea though. You need to think about the complexity of the work and the expertise necessary to finish the job and ask yourself if the Contractor will add enough value to make it worthwhile you paying his fee?
If you are one of the more capable clients, what we like to call the "intelligent client". Perhaps you want to manage it for yourself (and employ a jolly good Project Manager and Client Representative to boot). This will give you control you need so long as you want to hold the risk.
But if this is a little bit ambitious you may prefer to go out to tender for a good management Contractor (that you will pay a fee too) to manage the fit-out works for you. All in all its not a great position to be in so if you are the Client:
"....lock up your site, check what forms of bond
guarantee or warranty you have and most important of all don't overpay the Contractor!"
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