Project Manager and Quantity Surveyor Matt Grbcic explains some of the key signs you need to look out for when your builder is in financial trouble.
MG Group, as a client-side project management company, have been involved in many projects where the builder has found themselves into financial trouble. As a direct result, subcontractors often end up with large amounts of outstanding invoices and the developers cost to complete the project sky rockets. It is a painful and extremely stressful situation for all involved.
Despite current measures that are in place on most projects – namely funders ensuring that all invoices are submitted with signed statutory declarations and a cost to complete certificate from an independent quantity surveyor, these measures do not always prevent or mitigate the losses all parties suffer when the builder gets into financial trouble.
Based on our experience as a client-side project manager, the builder may be experiencing financial trouble if the following signs become prevalent throughout any stage of construction of the project:
- Program. Progress onsite generally slows down and key milestone dates are not achieved. Subcontractors are normally on 30-day accounts and a decline in subcontractor resources and man power onsite becomes evident when accounts become more 30 days overdue.
- Increase in contractual disputes. Small issues start to become overcomplicated contractual claims and we find that variation claims start to become creative.
- Inflated progress claim submissions. Monthly or fortnightly progress claims become problematic as many of the trades start to be overclaimed by the builder.
- Sub-contractors start complaining. Complaints and discussions arise regarding non-payment or delayed payment for works completed onsite.
- High turnover of key project staff. Project manager, contract administrator or site manager within the building company are constantly being replaced.
- Change in use of suppliers. Either a change in suppliers or a delay in a supply of materials to site.
Possible mitigation strategies:
- Undertake a thorough trade review of the builder’s price before entering into a construction contract with them. It is a good idea to get a Quantity Surveyor to check the builder’s trade breakdown and quote before it is accepted.
- Employ an independent Quantity Surveyor to certify works on a cost to complete basis. It is important that the independent Quantity Surveyor is diligently inspecting the project each month and is preparing a thorough cost to complete certificate.
- Call subcontractors regularly. Acting as superintendent, MG Group has now implemented a proactive process whereby we call several key sub-contractors directly periodically to ensure they do not have any outstanding accounts.
- Ensure all progress certificates adequately address and comply with the Building Industry Fairness (Security of Payment) Act 2017.
- Regularly review the status of the builder’s license on the QBCC Registry to ensure it has not been suspended.
- Ensure the Construction Contract includes amended conditions that:
- Does not allow for payments to be made for materials that are not installed onsite.
- Allow for the progress payments to be withheld by the principal when the builder is not paying sub-contractors.
- Engage a commercial solicitor to review and draft your construction contract to ensure that provisions are included in the contract and adequately deal with the risk of the builder getting into financial trouble.