Financial checks before you appoint

Subcontractor insolvency is the single most disruptive event on most construction projects. It stops the package, it costs more to complete than the balance remaining, and it usually happens on the package that was already causing concern.

Most of the warning signs are publicly available before appointment.

What to look at

• Filed accounts. Net assets, and whether they are moving in the right direction. Two consecutive years of declining net assets is worth a question.
• Filing history. Late filings are one of the more reliable early indicators of distress.
• Charges register. Recent charges, particularly invoice discounting or factoring, tell you how the company is funded.
• Directors. Previous appointments at dissolved companies, and how many other companies they run.
• County court judgments. Small ones matter more than large ones, because they suggest cash rather than dispute.

The tender that is too cheap

A package priced ten per cent below the next tenderer is either better organised or in trouble. A company that needs turnover to service debt will buy work at a loss to keep cash moving, and the loss appears later as claims, corner-cutting or failure.

The right response is not to reject it automatically. It is to ask why, and to look at whether the answer is capability or need.

Signs during the job

• Requests to bring payments forward or to pay weekly.
• Suppliers contacting you about unpaid invoices.
• Labour thinning without explanation.
• Disproportionate interest in a payment that was never previously chased.
• Key staff leaving.

Individually each has innocent explanations. Together they usually mean something, and the response is to tighten verification of materials and stop paying for anything not physically on site and identifiable.

What to do with a concern

Ask for security proportionate to the risk: a parent company guarantee, a bond on a substantial package, or vesting certificates for off-site materials. Reduce exposure by paying for less in advance rather than by refusing to appoint.

And keep the package position current. If the answer to what has been certified, what retention is held and what materials have been paid for takes a week to assemble, the week is the problem.