Construction insolvency—how to spot problems and how to protect yourself—consultants
Produced in partnership with CMS
Construction insolvency—how to spot problems and how to protect yourself—consultants

The following Construction guidance note Produced in partnership with CMS provides comprehensive and up to date legal information covering:

  • Construction insolvency—how to spot problems and how to protect yourself—consultants
  • Spotting the early symptoms of client insolvency
  • Consultant methods of protecting itself in advance
  • Payment provisions assisting the consultant
  • Protection available upon insolvency occurring
  • Insolvency matters where the consultant has been novated to a design and build contractor

Spotting the early symptoms of client insolvency

  1. most importantly, a consultant needs to keep alert to the client's financial status

  2. the consultant should take heed of ongoing rumours about the client's financial position (either in the press or by word of mouth)

  3. look out for official announcements to shareholders/the stock market (for example, profit warnings)

  4. note any surprising or uncommercial omissions from the project made by the employer

  5. keep aware of the employer's non-payment or late payment of the contractor or any other parties, on this project or on other projects being carried out by the employer

  6. clearly, if the employer suspends work on the scheme without any adequate explanation or without commercial rationale, this may be a sign that the employer is unwilling to finance further work

  7. confirm suspicions by carrying out a Dun & Bradstreet search/report, which should disclose , for example, any unsatisfied court judgments against the client

Consultant methods of protecting itself in advance

There are various ways in which a consultant can protect itself in advance against the risk of a client becoming insolvent during the course of a project. Those methods are mostly ones which can be incorporated into the terms of appointment of the consultant, and they include:

Ability to terminate for insolvency

The majority of building contracts will incorporate an ability for a contractor to terminate where the employer has become insolvent. However, this is not necessarily the case with all bespoke or short form appointments of consultants. It is crucial to include a clause of this nature in an appointment, because at common law, insolvency on its own is