REUTERS | Alex Domanski

Don’t let a drama turn into a crisis

Disputes are increasing; cash is short. Where does that leave you and your project?

We live in troubled times. The commercial property and construction industries have been particularly affected. In the construction industry, two trends are noticeable:

Present market conditions have contributed to these trends in three ways:

  • Cash flow. Getting credit is extremely difficult and this puts a lot of pressure on cash flow.
  • There are fewer projects. This makes it much harder for people to settle disputes on the basis of a promise of further work. It also means that there are greater resources and time to pursue claims, rather than moving on to the next project.
  • There is no rise in property and rental markets. This means that there is less cash to cover claims for additional payment and the cost of putting right defects.

In these difficult conditions, our experience is that people are less willing or able to settle disputes and problems are escalating that, previously, would have been resolved on site fairly quickly or successfully wrapped up into a settlement deal around the final account.

Other than in respect of a relatively small number of large disputes, these problems are likely to be dealt with by way of adjudication. Impending insolvency and adjudication proceedings can put an enormous strain on a project and the parties involved in that project. They certainly have profound financial consequences. However, the impact of insolvency or adjudication proceedings on a project can be significantly influenced by the effectiveness with which they are handled.

Yesterday afternoon we held a seminar for some of our developer clients looking at ways in which they could prepare themselves for an impending contractor or sub-contractor insolvency, or adjudication proceedings. The key practical tips that we gave our clients were:

Be forewarned

Be aware of the warning signs of an impending contractor or sub-contractor insolvency, or that you are about to receive a notice of adjudication.

Be prepared

If you have read the warning signs properly, there is a lot that you can do before a contractor or subcontractor formally becomes insolvent and/or before formal adjudication proceedings are commenced.

You will be under a lot of pressure if you do nothing until the formal processes start. Be aware of the practical steps that you can take and the procedures involved. This helps you stay in control of the process.

Plan ahead

Make sure your team is in place, as you will need their help in dealing with an insolvency or adjudication. Make sure key personnel are not away or, if they are away, make sure an appropriate replacement is available and fully briefed. Consider whether you need professional advice.

Make sure your documents are in place. In an insolvency situation, collect together the contract, any warranties, bonds and guarantees. Make sure you are aware of and comply fully with the terms of the contract. In an adjudication, the response is your key submission to the adjudicator. Do not delay in collating key documents and developing your defence strategy, so that your response includes all the arguments and evidence on which you rely.

Prepare a contingency plan, which can be put into effect as soon as it is required.

Stay in control

The main message is to try to stay in control. Impending insolvency and adjudication proceedings are difficult situations for all parties involved on a project. It is unlikely that anyone will achieve a perfect result. However, by staying in control of these situations, you are more likely to achieve a satisfactory one.

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