Contractor Insolvency – A Practical Guide For Employers

The consequences of contractor insolvency can have far-reaching implications beyond the parties to a construction contract. Insolvency inevitably results in increased costs, project delays and third parties losing the benefit of collateral warranties. It is, therefore, important for an employer to protect its position at the outset of a project and understand the steps that are open to it when contractor insolvency occurs.

Contractual safeguards

Most standard forms of building contracts do not include an express right to terminate a contractor unless included during the negotiation process. Ideally, the employer should seek to include an express right to terminate the building contract by notice, at the employer's option, in the event of contractor insolvency. The inclusion of a notice period provides the parties with an opportunity to engage in meaningful discussions with a view to completing the works, rather than an automatic termination which has far-reaching