Liquidation of contractor and remediation action plan

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Liquidation of Contractor and Remediation Action Plan

1. Contract

1.1. Liquidation

Firstly, it must be established which type of liquidation has been undertaken; Compulsory, Creditors Voluntary or Members Voluntary[1]. If it is Members Voluntary then all creditors will be paid in full which will impact on the relations with suppliers and subcontractors. Secondly, it needs to be established if the Insolvency Practitioner (IP) is intending to carry out the contract themselves; if so it is a decision on clause 3.7.1, sub letting, whether you wish to pass the whole of the contract to the IP to complete.

1.2. Termination of Contract

In order to terminate the contract you may invoke clause 8.5.1 from Insolvency of Contractor allowing you to terminate the contract of employment at any time, in writing, on consideration of clause 8.1.1 that states the contractor is insolvent as of its appointment of an Insolvency Practitioner under the Insolvency Act 1986 Clause 1.2.[2] Though it is necessary to note that as of determination of the contract then time limitations will no longer apply and LADs will cease to be calculated[3]

1.3. Extent of Work

In order to maintain a suitable transition period and to close out the contract as in 1.2 it will be necessary to review all expenses made leading up to this point in respects of the previous contractor, all records must be attained for all payments made to the contractor on this project, in the form of interim certificates, and then the sum total of payable works completed on the contract all in accordance with clauses 8.7.3.1-3. This will allow a clearer picture of monies owed to the contractor or vice versa. To support these claims and to aid future work it will also be necessary to obtain the Contractor's Design Documents from the contractor under clause 8.7.2.2.

1.4. Securing the Site

As soon as possible clause 8.5.3.3 should be invoked allowing you to ensure that the site is secured and that all works and site materials within that boundary are also protected. The insolvent contractor may make no attempt to obstruct you in this process. In addition, clause 2.24, Materials and Goods, states that all materials be they onsite or adjacent to the works and intended for use within the works have become your property in accordance with interim certificates created for the contractor. Finally, the contract administrator can issue a variation under clause 3.14.1 and utilising clause 5.1.2.1 that states a restriction of access to all persons sub contracted on the previous contract to site.

1.5. Sectional Completion

Sectional completion was originally specified in the contract however with insolvency and non completion it will not be possible to issue the section completion certificates under clause 2.30.1. You may retake possession of the sections determined in the contract from the contractor by invoking clause 2.33. Additionally, non completion opens up the route of attaining LADs for the uncompleted sections. In the case of sectional completion, it can be understood that the delay stated in 2.1 will run throughout the project and affect the completion dates of all remaining sections thus allowing LADs to be requested, under clause 2.32.1, for all sections in turn, as evidenced by the ruling of Coulson J (2008)[4] whereby any delay deemed to be caused by the contractor can be appropriated, as LADs, on a sectional completion basis. Adjustments will have to be made concerning work completed and will be covered in 3.8.

1.6. Insurances

Insurance Option C was stipulated in the original contract and it is necessary to verify whether joint names insurance was requested (Schedule 3 : C.2). If so, then the insurance policy would have been taken out by you, the employer, and as such you will need to contact the insurance company to ascertain whether you can renegotiate the policy for a different contractor. Additionally, the contractor may have taken out insurance for plant, materials and off site items, contacting the IP to ascertain whether these insurances can be purchased as part of the liquidation and could save monies.

1.7. Collateral Warranties

It will be necessary to check whether any collateral warranties were stipulated in the contract under clause 7C-E or in part 2 of the Contract Particulars particularly in reference to an additional form SCWa/F which states the Sub - Contractor Collateral Warranty for the funder. If these items are present then it will be necessary to acquire all relevant documentation in relation to these warranties if there be a need to call on them in the future. Additionally, it may be constructive to instruct the QS and engineers to investigate the building for possible defects in completed construction works and subsequently invoke clause 8.7.1 to include a remedy of observed defects in to a revised bill of quants so as to be included in a new collateral warranties.

2. Completion

2.1. Current Delay and Non Completion

To re-evaluate the expected completion time and to settle the contract with the IP you must issue a Non-Completion certificate under clause 2.31. This will allow you to evaluate the LADs that are can be recalled based on the completion of works thus far. The current delay is estimated to be 12 weeks.

2.2. Procurement Path

There are two main considerations when opting for your procurement path:

2.2.1. Time Weighted Procurement Procedures

Depending on the contract with the current tenants of the Victorian house you may opt for a minimum time consideration when attempting to procure for a new contractor. As the Quantity Surveyor has produced a full bill of quantities for this project you can opt for a cost reimbursement strategy on a negotiated contract. The advantages of negotiation are that a contractor could feasibly start on site as soon as they agree to undertake the project vastly reducing start up time. Conversely this method will not appropriate the cheapest method for getting your contract completed due to the lack of competition in providing prices.

Alternatively, you could opt for a two stage tender process which would allow the competition of open tendering whilst also allowing the option of a relatively quick start on site. The pitfalls of this process being the lack of clarity involved in the tender sum submitted at stage one of the bid; additionally there can be problems in to entering in the contract; firstly that no contract exists despite thought being to the contrary or that the employer has agreed to an unrealistic contract sum[5]. Ensuring the correct wording of the acceptance letter will alleviate these issues

2.2.2. Cost Weighted Procurement Procedures

If time is not a factor in completion of the contract then it is recommended that an open single stage tender process be selected though with a selected pool of contractors. This option will allow full competition between tenderers and can ensure that you will receive the best price for the completion of your work. This option, however, will take the most time to complete as the contractors will require sufficient time to acquire accurate quotations for the work. It could be assumed that with the remaining work in relation to the named subcontractors this process may not be as time consuming as normal circumstances.

2.3. Total Anticipated Delay

The total anticipated delay will be dependant on the procurement path chosen and subsequent performance of the new contractor. Allotting a standard time of 5 weeks if the time weighted procurement path is taken and 15 weeks for the cost weighted path there is an anticipated delay at this stage of 17 weeks and 27 weeks respectively. This result is calculated using the previous programme and adjusting for the already stated delay of 12 weeks, furthermore this does not take into account the possibility of extensions of time for the bidding process. A Gantt chart of programme is available in figure 1.2 and 1.3.

2.4. Extraordinary Circumstances with Sub Contractors

The termination of the contract with the contractor will immediately terminate any contracts held with the subcontractors by the contractor under clause 3.9.1. If you so wish to contract certain parts of the work through direct contracts with subcontractors, nominated or otherwise, you may invoke clause 2.7.1 allowing execution of works outside of the contract bills. If, however, this work is included in the contract bills the contractor must permit work to be completed.

2.5. Revised Completion Date

The revised completion date will be dependant on the time taken to achieve reprocurement; using the delay outlined in 2.3 it is calculated that with procurement chosen on minimal time the completion date will be 15th December 2006. Alternatively, undertaking a longer yet more cost proficient technique the project should complete on 23rd February 2007. The programmes are available in figure 1.2 and 1.3.

2.6. Appointment of New Sub Contractors Where Necessary

As was stated in 2.4, subcontract contracts will have been terminated, if you wish to appoint alternative subcontractors it will be necessary to provide potential tenderers with a list in the Contract Bills. This list must consist of a minimum of three possibilities in accordance with clause 3.8.2 and if the list does not consist of three the contractor may add names to the list, clause 3.8.3.1, or contract to anyone they deem fit with your approval, clause 3.8.3.2.

2.7. Sectional Completion

To assign a sectional completion approach on to the new contract you must specify, under clause 2.4.1, the sectional completion dates in the Contract Particulars part 1. You may also wish to include LADs for each individual section, under clause 2.32.2, and also specify in the contract particulars. It may be necessary to release any retention held within the rules outlined in clause 4.20 in order to soothe transition of subcontractors. It would be recommended to provide leniency on the sectional completion to appease tenderers and impose LADs on the final completion of the project in order to take in to account defects possibly arising from the previous contractors work.

2.8. Applicable Insurances

It would be prescient to withdraw all risk insurance for subcontractors to reduce the risk to yourselves and specify individual insurances. To establish all insurances are in place you can call upon clause 6.4.2, the right to call upon the contractor to provide all relevant documentation in respects of insurances to ensure that all are correct are up to date. If these documents are not presented in the appropriate time you can take out the relevant insurances yourself, under clause 6.4.3, and receive reimbursement of the costs through monies owed to the contractors.

3. Financial

3.1. Value of Work Completed & Variations

The current value of work completed will have to be assessed by the quantity surveyor and then compared to the interim certificates gathered and assessed under clause 8.7.4.2. In addition, the interim certificates will illustrate the amount of retention that has been accrued and retained under clause 8.7.3. The value of works is illustrated in figure 1.4.

3.2. Requisition of Existing Site Set up

To reduce costs of an additional site set up for any newly appointed contractor and continuation of works clause 8.7.1 can be invoked which allows, subject to 3rd party agreement, the continuation of use of temporary buildings, plant, tools and equipment that may already be in position on site. Furthermore, it may be appropriate to request the previous contractor to attend site to ascertain which materials are theirs and remove them at their expense, under clause 8.7.2.1, unless it is deemed that these materials may be useful in which case enquiries for purchase should be sent to the IP.

3.3. Materials On Site

All materials on site cannot be removed by suppliers without Contract Administrator approval and can be assumed to be used within the project works, in accordance with clause 2.24. This, however, can bring up issues with relations with sub contractors regarding unpaid debts, it would be advisable to 'do a deal' with the subcontractor offering payment in return for taking on the debt from the contractor and in turn applying for the monies back from the IP, this ensures no double liability.[6]

3.4. Materials Off Site

To retrieve materials not based on site, all materials stated in interim certificates, as collated from advice in 3.1, can be deemed to be the employer's property, clause 2.25, and any monies owed to storage or suppliers should be retrieved through the insolvency process. This, however, may result in issues in future relationships it may be advisable to renegotiate certain terms with suppliers and offset the costs against monies made available through bond, see 3.7, or LADs, see 3.8.

3.5. Insolvency Remuneration

It will be necessary to investigate the type of bond that was put in place to seek certain remuneration. Of the two types of bond an 'On Demand' bond will enable requisition of the funds immediately and continuation of the work, as stated in Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd (1999)[7]. Alternatively, however, if the bond was conditional it may not be possible to access the bond until the Final Certificate is issued, as in Perar BV v General Surety & Guarantee Co Ltd (1994)[8], or if there is no evidence of fraud, and as such alternative funding will need to be acquired to complete the project.

3.6. Appropriation of LADs

LADs can be claimed under clause 2.32.1 after issuing the certificate of non completion. It is not stated whether they are sectional dependant or due on project completion which would be stated in part 1 of the contract particulars. Both propositions have different outcomes with a different financial amount achievable. If the LADs are based on sections then it can be presumed that the 12 week delay will roll over on to each section and as such vastly increase the amount receivable. Accounts for both situations are set out in figure 1.5.

3.7. Retention Findings

Retention payable to the main contractor can be retained under clause 8.7.3 and may be used to alleviate the costs of the procurement process or alternatively be used to maintain the relationships of subcontractors by paying off any retention that is due to them from the main contractor. It is presumed that retention monies held by the main contractor will be passed to the IP to pay off debtors of the contractor as there is no clause in the subcontract similar to clause 4.18.1 stating the monies will be held in trust and thus not a part of their estate.

Bibliography

Ashworth A, 2006. pp 99. Contractual Procedures in the Construction Industry. Pearson Education, Harlow.

Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd (1999) WL 852268 (CA(Civ Div))

Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd. [1996] 75 BLR 1

Building Contract Directive (BCD.50), Nov 2004. West Sussex County Council

Insolvency Act 1986, 25th July 1986. UK Statutes Crown Copyright

Liberty Mercian Ltd vs Dean & Dyball Construction Ltd. [2008] EWHC 2617 (TCC)

Perar BV v General Surety & Guarantee Co Ltd [1994] 66 B.L.R 72

www.freshfields.com/publications/pdfs/2009/mar09/25436.pdf

Appendices

Advantages and Disadvantages of Negotiated Tendering

Advantages

Disadvantages

Previous business relationship can aid appointment.

Higher tender sums incurred

Early start on site

Suggestions of favouritism in the industry

Possible use of expertise in dealing with insolvency situation

References

[1] Building Contract Directive (BCD.50), Nov 2004. West Sussex County Council

[2] Insolvency Act 1986, 25th July 1986. UK Statutes Crown Copyright

[3] Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd. [1996] 75 BLR 1

[4] Liberty Mercian Ltd vs Dean & Dyball Construction Ltd. [2008] EWHC 2617 (TCC)

[5] Ashworth A, 2006. pp 99. Contractual Procedures in the Construction Industry. Pearson Education, Harlow.

[6] www.freshfields.com/publications/pdfs/2009/mar09/25436.pdf

[7] WL 852268 (CA(Civ Div))

[8] 66 B.L.R 72

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