Insolvency is the state of a person or company being unable to pay its debts when they fall due, or having liabilities that exceed its assets. A person or company in this position is described as insolvent.
Construction is particularly exposed to insolvency because margins are thin, cash flow is critical and firms depend on payment from others in the supply chain. In the UK the main corporate insolvency procedures include administration, liquidation and company voluntary arrangements. When a contractor or subcontractor becomes insolvent, the QS will usually need to:
- establish the value of work completed and payments made, to avoid overpayment;
- secure the site, materials and any off site materials the client has paid for;
- review the termination provisions in the contract and any security, such as performance bonds or parent company guarantees;
- assess the cost of completing the works with a replacement contractor.
Related terms: Termination, Performance Bond, Parent Company Guarantee, Cash Flow.
