Builder failure: understanding and mitigating the downside

Thursday, 11 July 2019

The construction industry is disproportionately represented in corporate insolvencies, representing 23% of all external administrations despite accounting for only 8% to 10% of the national GDP.

Developers, with their finely tuned feasibilities, assume considerable counterparty risk when entering contractual relationships with contractors who are entrusted to deliver their projects on time and on budget.

Whilst a large proportion of construction insolvencies are experienced at subcontractor level, it is when a head contractor falls into external administration that the full effect is felt on the profitability of a development project.

Given the elevated counterparty risk when dealing with the construction industry, it is prudent for developers and financiers to understand the downside; what are the cost and time implications of replacing a builder due to the incumbent falling into external administration?

With a rich history of finishing partially completed projects, we have looked back at our previous engagements where a builder has been replaced due to an event of insolvency, to not only answer the questions but also provide commentary on early warning signs to help negate the downside, as early intervention is critical.
 

To read the full paper, click Download PDF below.