Contractors In Trouble: Spotting The Warning Signs

As building projects slow down, developers need to

be watchful of suppliers running into financial trouble. Steve

Tancock suggests what to look out for.

The market for new housing developments has almost come to a

standstill, leaving contractors faced with either completing

projects with little likelihood of sales or 'mothballing'

them until the market recovers.

As a result, a number of major construction companies have

imposed more onerous trading terms on their subcontractors. They

are also rationalising their list of sub-contractors by insisting

upon a test of solvency to gain or retain preferred supplier

status. While this is of benefit to those on the list, it is bad

news for those who haven't made the cut. However, it may be a

double-edged sword for those on the list as the trading terms and

conditions they are signing up to may be particularly prohibitive

regarding profit and payment terms, and continued turnover is the

only benefit that they derive in these difficult times.

For those working within the industry, be they contractor,

sub-contractor or subsub- contractor, the essential component for

continuing to trade successfully is payment in cash on time to meet

debts as they arise.

Look out for cracks

As a developer or a contractor employing multiple

sub-contractors for a development, it is important to be able to

identify signs which indicate that a sub-contractor may be

experiencing difficulties. There are a number of warning signs you

should look out for.

Contractors/sub-contractors will try to increase their

valuations by as much as possible and their applications for

payment may be inflated significantly.

The availability of labour on site is often a key indicator of

a problem with a sub-contractor, as are apparent delays due to the

lack of availability of materials or goods. The latter may indicate

that the sub-contractor is unable to purchase materials due to poor

current payment records with suppliers.

'Word on the street'. Dissatisfied employees or

sub-contractors often make their feelings known to other trades on

site, thereby signalling the predicament of their employer.

These signs are often accompanied by requests for payment for

easily removable materials on and off site, causing potential

problems in the event of a failure by the sub-contractor. Retention

of title issues also come to the fore and you may discover that you

have paid for goods you can no longer find or use.

Payment and cashflow problems are now...