In both ISG and Carillion’s cases they had no choice but to keep on taking on contracts with very thin or even negative margins to generate cash and remain in business. They were trapped in a never-ending cycle – like a hamster in a wheel - if the wheel stops – you’re toast.
In these uncertain times it is increasingly important to;
Carry out a risk assessment prior to taking on work and reject potential projects if they appear to be too risky
Carry out credit checks on all the players
Scrutinise tenders because if it looks too good to be true – it probably is
Scrutinise interim payment applications and remove items that have been included ahead of requirements
Don’t over certify, if companies go into administration any over payment will be impossible to retrieve.
And if the worst happens and a contractor goes into administration;
Secure the site to ensure plant and other items are not removed. Situations like this have in the past led to people stripping sites of plant and equipment to reclaim money owed. The danger is that this gets out of hand and turns violent.
Check insurance cover depending on the form of contract
Install site security
Look at best cost-effective ways to get the outstanding job(s) completed. The most lucrative contracts including the jobs that are yet to start will soon be picked off by others in the industry leaving behind the problem contracts.
Duncan Cartlidge
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