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ARTICLE · 17 JULY 2024

Insulating Construction Contracts From Insolvent Contractors

Herrington Carmichael LLP
Herrington Carmichael LLP
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Herrington Carmichael LLP

Herrington Carmichael LLP

The origins of the practice can be traced back over 180 years in Wokingham and 150 in Aldershot. It...

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Rising insolvencies in the construction sector highlight the importance of robust contracts. Key protective measures include retentions, parent company guarantees, performance bonds, collateral warranties, Third Party Rights, insurance, and escrow accounts. Ensuring contracts are well-drafted and pre-checked can safeguard clients from contractor insolvency issues.

United KingdomReal Estate and Construction
Jake Gatley
Jake Gatley
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Preparing for the worst as insolvencies rise

More and more construction firms are going bust

According to recent figures from the Insolvency Service, construction firms accounted for 17.3% of all insolvencies in England and Wales in April 2024, with 399 registered construction businesses becoming insolvent. This is in line with the latest statistics published on 18 June 2024, showing a trend over the last 12 months whereby a total of 4,401 of insolvencies were in the construction sector, accounting for 18% of insolvencies.

It is every client's worst nightmare: a main contract which goes bust partway through a project, or a major defect presents itself shortly after completion only to find that the main contractor has gone into liquidation. As more and more companies struggle with the challenges of inflation and higher interest rates and as insolvencies rise, it is increasingly important for clients to protect their position by ensuring their construction

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