<p>The slowdown of the UK’s construction activity in March 2020 was the fastest decline seen since the 2008 financial crisis.</p><p>With the UK government having already announced that it will be introducing changes to the insolvency regime in England & Wales, as part of its response to COVID-19, there is a clear indication of what is expected to come. Our general guidance on
managing the increased insolvency risk arising from this period of disruption can be found <a data-sf-ec-immutable="" href="https://www.simmons-simmons.com/en/publications/ck7fx9c860qxc0921fc1arkmq/covid-19-impact-managing-insolvency-risk-and-financial-reporting">here.</a></p><p>In the construction industry, as cash flow issues bite, the downturn is likely to result in the insolvency of many sub-contractors which, in turn, will see the risk carried by the contractor. Last month a survey from the Federation of Master Builders
found that two-thirds of SMEs in the UK construction industry will not last more than two months, unless the government gives them cash grants.</p><h3 id="what-contractual-protection-might-exist-under-the-construction-contact">What contractual protection might exist under the construction contact?</h3><p>Where there has been a sub-contractor insolvency, and the works are ongoing, contractors may have a contractual right to terminate as a result of the sub-contractor’s insolvency. Other options include making calls on any bonds available, or contacting
any guarantor to complete the outstanding works.</p><p>It is also commonplace for sub-contractors to provide collateral warranties in favour of employers, or other third parties such as a funder (albeit, a collateral warranty is only as robust as the contract to which it relates).</p><p>Concern over the potential for costly and long-running disputes involving construction industry participants has prompted</p>
Source: LexisNexis Purpose Built
Trouble in the supply chain? Sub-contractor insolvency and insurance
