Taking Over A Part Done Job

• Published date: 08 December 2021
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Corporate Governance, Insolvency/Bankruptcy, Contracts and Commercial Law, Government Contracts, Procurement & PPP
• Law Firm: Fenwick Elliott LLP
• Author: Mr Jatinder Garcha

Following the temporary restrictions on winding-up petitions brought in under the Corporate Insolvency and Governance Act 2020 being lifted, as Jatinder Garcha sets out, we are left with a contracting market still working its way through the ripples of Brexit, COVID-19, labour and material shortages, price fluctuations and just about the toughest Professional Indemnity insurance market we have seen.

With the prospect of insolvency related terminations of building contracts taking place over the coming months, this article considers some of the implications of taking over and completing a half done construction project.

Patience is golden

Seeing your completion date drift further and further away is frustrating and can trigger knee-jerk reactions. Employers need to be very careful not to instruct another contractor to undertake works that are already contracted to the existing contractor under a live building contract.¹

All of the formalities and notice requirements for terminating the building contract must first be met before instructing a third party to undertake such works - failure to do so will almost certainly put the employer on the wrong end of a repudiatory breach of contract argument from the existing contractor.

Mitigation of losses

Employers are under a duty to minimise their losses and avoid taking unreasonable steps that increase their losses. There is a good argument that early engagement of a third party to assess procurement options and assist in supply chain management for completing the project would fall under this heading. Such appointments do, however, need to be carefully worded.

Performance security

Performance security can soften the blow of what is often an expensive transition.

A 3 to 5% retention will usually be held by the employer and, increasingly, the JCT's fiduciary obligations in respect of retention are deleted, meaning this sits in the employer's back pocket.

Performance bonds should be checked carefully and typically provide security for up to 10% of the contract sum. The go-to bond in the UK market is the Association of British Insurers' form. This is a default bond giving the employer an entitlement to recover damages only once the contractor becomes liable under the building contract. In cases of contractor insolvency, the employer's losses are unlikely to be ascertained until the works are completed, meaning recovery can be delayed. As a result, we have seen an increase in clauses being inserted into the JCT...