Insolvency of any party on a building project is regrettable and something advisers should look to militate against at pre-tender stage. Pre-contract checks on financial position, current workload and resources are essential prerequisites to entering a construction contract: yet, despite such checks, insolvency remains a possibility. Although insolvency in the industry has fallen slightly over the past year, history shows that, once construction activity picks up, insolvency is likely to increase. Insolvency numbers have been lower because monetary policy has provided financial props and their removal will, in all likelihood, produce an increase. As construction is the sector that frequently produces more insolvencies than any other, detailed consideration should be given to contract termination provisions and what type of security might be sought, for example, performance bonds, parent guarantee, and so on, to provide protection in the event of insolvency.
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