26 January 2018

I am a sub-contractor about to enter into a contract with a main contractor: what can I do to protect myself against main contractor insolvency?

  1. Carefully scrutinise proposed sub-contract conditions, particularly bespoke terms, as these may include rights not to pay you if there is an upstream insolvency.
  2. Consider advance payment for procuring materials and equipment.
  3. Be wary of agreeing extended payment cycles as this will increase your exposure.
  4. If you are in a strong bargaining position you could ask for a performance bond from the main contractor and/or advance payments and/or a weighted payment schedule which is front loaded.
  5. Retention of title provisions (but see above regarding risk of title transferring when goods become incorporated into a building).
  6. A right not to pay your sub-contractors and suppliers if you are not paid due to an upstream insolvency.
  7. Suggesting a project bank account and/or escrow arrangement is put in place so that payments from the employer filter down through to the supply chain quickly.

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About the Author
Sam Payne, Partner, Head of Restructuring & Insolvency Team
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