The demise of Connaught's social housing maintenance business will have left a great deal of its local authority clients wondering what happens next when you need services to be undertaken and cannot afford to wait for the contractor's administration to pan out. Such clients need to be aware of what they can do in this situation under the contract. First, do some homework: who else is there in the marketplace? Is there a potential buyer of the insolvent firm's business and will any such purchase include the contract that it has with you? Second, dig out and dust off the contract: can you terminate it?
By way of example, the GC/Works/10 (2000) Facilities Management and NEC Term Service contracts both allow the employer to terminate for any reason. This will have more costly financial implications for the employer however than for terminating for a specified reason. Specified reasons include the service provider having a winding up or administration order made against it, provisional liquidator appointed, having passed a resolution for its winding up, receiver appointed or having made an arrangement with its creditors. The GC/Works form further allows the employer to terminate the contract if the service provider undergoes a change of control. Administration should not be confused with administrative receivership or liquidation.
Administration means that an insolvency practitioner takes control of the company's management in order to realise as much cash as possible for the company's creditors. In the case of Connaught it has been reported in the press that 80 per cent of Connaught's affordable housing contracts have been purchased by Morgan Sindall and others by Mears.
Looking to the future, it is also important to shut the door before the horse bolts: when entering into a critical services contract seek advice at the outset on how the contract terms can be used to put you into the best position possible in the event of the services provider going through an insolvency event.