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Articles Construction 16th Jan 2018

Construction Alert: Carillion Insolvency – 12 Top Tips to Limit Your Exposure

The compulsory liquidation of Carillion on 15 January could leave you in a long queue of parties trying to recover money from Carillion’s liquidators. We have set out our 12 Top Tips for Employers and Sub-Contractors / Suppliers that you can take now to limit your potential exposure. It is important you get it right and do not rush to take steps which may cause problems in the future, such as terminating your contract prematurely. These are our 12 Top Tips, depending on your role and the stage your project has reached.

Employers – Immediate Points to Consider

  1. Secure the Site – immediately secure the site to prevent sub-contractors from removing materials or equipment that are on site or have been installed.
  2. Insurance – you should check the insurance provisions and, if Carillion was providing the insurance, assume it will lapse. You should get the site insured today. It might be that the liquidators will put a policy in place but you should assume that they won’t unless you are expressly told otherwise.
  3. Termination – before terminating, check that you have the right to terminate for Carillion’s insolvency and whether you need consent to terminate from any other parties (funders, under agreements for lease, etc). Once you are ready to terminate, serve notice of termination by whatever means are required by the notices clause in your contract. For most contracts, you will be safe to serve by Recorded Signed For or Special Delivery post to Carillion’s registered office address with a copy to Carillion’s liquidators. It won’t hurt to serve by email as well.
  4. Status of Works – you should carry out a survey of the state of completion of the Works to obtain the most accurate picture possible. You will need to have as much ammunition as you can get to justify withholding money from Carillion’s liquidators. Don’t assume that the last contract valuation was absolutely correct and do check whether materials really remain on site.
  5. Payment – you should serve Pay Less notices on Carillion in respect of all sums which have not yet been paid, unless you are quite sure that you have no legal option but to make the payment. These notices should be sent to the same parties as the termination notice (see above) and must be served within the contractual time limits or you will lose the right to serve them. It is critical to serve a notice and pay a reduced sum if you have any potentially justifiable reason to pay less than the sum which has already been notified – money overpaid to Carillion now is unlikely to be recoverable in the future.
  6. Continuing/completing the Project – you should begin discussions with funders and others involved in your project to see what you need to do in order to get the works finished. It may be that you will be able to do it by engaging the sub-contractors direct and/or by utilising step-in rights in collateral warranties.
  7. Contract terms – understand your options in terms of practical things such as the right to ask for sub-contracts and supply contracts to be assigned to you as this may influence what you decide is the most practical way to get the works finished.
  8. Latent defects insurance – it may be worth contacting your insurance brokers to talk about latent defects insurance.

Employers – Short to Medium Term Points to Consider

  1. The Site – you will need to prepare a list of the materials and equipment on site and any claims to those items. Removal or recovery of materials or equipment should be done with the agreement of Carillion’s liquidators.
  2. Continuing/Completing the Project – you should check any contracts between you and others such as development agreements, agreements for lease, forward sale agreements, etc, to determine your liability for delay. If you need to appoint a new contractor you will need to take steps to do this at the earliest opportunity and those agreements may impose a procedure you have to follow.
  3. New Contractor – if you need to appoint a new contractor or appoint the sub-contractors or suppliers direct to complete the works then you will need to agree the terms of the contract(s) unless you can take over the existing ones using collateral warranty step-in rights or similar. Having an accurate survey of the status of completion of the works will assist with this. You should ensure you have a new contract in place before continuing with the works.
  4. Other Insolvencies – Carillion’s insolvency is likely to trigger the insolvency of a number of sub-contractors and suppliers so as the project moves forward, keep a careful eye on the performance of the sub-contractors and have contingency plans in place to deal with further insolvencies over the coming few months.

Sub-Contractors & Suppliers – Immediate Points to Consider

  1. Equipment Recovery – if you have any equipment on site, make arrangements to recover it.
  2. Retention of Title – if your contract has a retention of title clause and you have not been paid for any goods or materials delivered to site, find out where they are and make arrangements to collect them.
  3. Termination – review your rights in the termination clause of your contract and any collateral warranties. It is best not to take any steps to terminate until you have more information about if/ when the project will proceed. Your contract may be assigned to another contractor or the client may step-in to complete the project (which means a very good chance of you being paid) and this cannot happen if you have terminated the contract.
  4. Status of Services – you should gain an accurate picture of the state of completion of your services. You may need proof of the stage your services reached and now is the best time to prepare that information.
  5. Payment To You – you should ensure that all sums to which you are due are properly recorded and invoiced so that you know where you are on the project.
  6. Payment By You – In relation to your own sub-sub-contractors and suppliers, check whether your contracts contain clauses entitling you to serve pay less notices and not pay in cases where your client has not paid you due to its insolvency. The Construction Act banned “pay when paid” clauses generally, but allowed them to continue to operate in cases of insolvency
  7. Continuing/completing the Project – you should begin discussions with the client to see how you might be involved in helping to get the works finished.
  8. Contract terms – understand your options in terms of practical things such as Carillion’s right to assign your contract as this could affect your continued involvement if your contract could be assigned to a new contractor or direct to the employer in order to get the job finished.

Sub-contractors & Suppliers – Short to Medium Term Points to Consider

  1. Recovery of Equipment or Materials – if you have been unable to recover equipment or materials, you should send a list of the relevant items to Carillion’s liquidator and request you are granted access to recover them.
  2. Payment – make sure Carillion’s liquidator has the information it requires regarding your outstanding payments. It should keep you up-to-date regarding the progress of the liquidation process.
  3. Continuing/Completing the Project – if you have been appointed by another party to complete the Project you should ensure you have a new contract in place before you start any work.
  4. Collateral Warranties/Product Guarantees – you should understand who, under the terms of your contract with Carillion, is entitled to a collateral warranty and whether the obligation to give warranties survives termination of your contract (it may not). It may be that there are deals to be done in terms of offering a collateral warranty of your work/product guarantee in return for some or all of your outstanding invoices being paid by the beneficiary of the warranty.

Further advice

Before taking any steps, we suggest that you contact Freeths to discuss your contractual rights and obligations and how best to mitigate your exposure.


The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
Chris Holwell - Construction Lawyer

Author: Chris Holwell

Partner & National Head of Construction

Perveen Ahkter

Author: Perveen Akhter

Partner

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