Insolvency of a contractor or a sub-contractor during the course of a building project has the potential to incur other parties involved in the project in considerable costs.
Here are some of the things to bear in mind in case a contractor or sub-contractor becomes insolvent.
- There can be issues over who owns the materials on site. Ensure that the position as to ownership of materials is clearly set out in the contract.
- Following the recent case of Melville Dundas v Wimpey, it may well be possible to withhold payment from an insolvent party, even if no withholding notice has been served. This will depend on the wording of the contract. Ensure that it covers this.
- Any defects in the work undertaken by the insolvent party will need to be rectified. How is this to be paid for?
- Almost inevitably the works will be delayed and costs will escalate. Who will pay for this?
- And finally a specific warning to employers. Do not pay sub-contractors directly. If they become insolvent you may still find yourself liable to the main contractor for the monies that you have already paid to the sub-contractor