Subcontractor Left High and Dry by Contractor's Insolvency Wins £2.7 Million
12th February 2018Back to articles
Complex networks of contractors and subcontractors are commonplace in major building projects, where dozens of contractors can be involved. In such circumstances, significant problems can arise if one of the businesses which forms an important link in the chain becomes insolvent.
However, judges have power to help those affected, as was shown by one case in which a subcontractor was awarded over £2.7 million when it was able to enforce a guarantee provided by an insolvent contractor's guarantor.
The main contractor engaged in the construction of a power station had employed the subcontractor to supply, fabricate and erect structural steelwork. The project was afflicted by severe delays that were due to the main contractor's failure to control and coordinate the works effectively.
The subcontractor suffered substantial disruption and had to work in an uneconomic manner. It commenced adjudication proceedings against the contractor claiming the sums due on its final account for work done. The adjudicator found in its favour, but the main contractor went into liquidation without paying any of the sums found due. The subcontractor was thus constrained to launch High Court proceedings.
The Court found that the subcontractor's account of the main contractor's numerous defaults was palpably honest and it was awarded a total of £2,774,077 before interest.
The ruling opened the way for the subcontractor to enforce payment of at least part of that sum by the main contractor's parent company, which had provided the guarantee.
This case shows the value of negotiating a contract which minimises risk (in this case via a guarantee) and making sure you retain sufficient evidence to demonstrate where the blame lies should it be necessary.
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