Friday 20th September
Protecting employers from contractor insolvency – securing insurance after administration
The recent news of certain ISG companies entering administration has sent shockwaves throughout the construction industry. Employers, subcontractors, suppliers, and employees are all facing significant uncertainty. For subcontractors and suppliers, this insolvency raises concerns about unpaid invoices and ongoing work, while employees and staff of ISG face job losses and financial instability. These groups deserve recognition and sympathy for the difficulties they now confront.
From the perspective of Employers (project owners), the focus is on maintaining project continuity and securing protection from the risks of contractor insolvency. One of the most pressing issues is ensuring that projects remain insured, particularly if the insolvent contractor was responsible for the project’s insurance. To mitigate these risks, it’s vital for Employers to work closely with a reputable insurance broker to arrange single project insurance, such as an Owner Controlled Insurance Program (OCIP), providing coverage against liability, accidents, and property damage.
Managing subcontractors
In addition to securing insurance, Employers need to quickly decide how to handle subcontractors after the contractor’s insolvency. Two main options are available:
Novation: This involves transferring the contractual obligations with subcontractors to a new main contractor. The new contractor steps in to manage the project and its subcontractors. While this approach maintains the original project structure, finding a new main contractor willing to take over mid-project can be challenging.
Collateral Warranties: If collateral warranties are in place, Employers can directly engage subcontractors to complete the project without the need for a new main contractor. Collateral warranties establish a contractual link between the Employer and subcontractors, enabling the Employer to manage subcontractors directly. However, this requires the Employer to take on a more hands-on project management role.
Handled correctly, this approach not only ensures project continuity but can also help save subcontractors by allowing them to continue working. With the right insurance in place and clear management, subcontractors may be able to complete their work and get paid for services rendered, which is essential for their survival during such challenging circumstances.
Insurance protection
Regardless of the method chosen to manage subcontractors, ensuring comprehensive insurance coverage is critical. Employers should prioritize securing Construction All Risks (CAR) insurance, which protects against physical damage and liability during construction. In addition, Latent Defects Insurance (LDI) is essential to cover any structural or hidden defects that may surface after the project’s completion, providing long-term protection.
The role of insurance brokers in navigating insolvency
In light of the contractor’s administration, it’s clear that Employers must act swiftly to safeguard their projects and mitigate risks. A knowledgeable insurance broker is a valuable partner in arranging CAR and LDI coverage, ensuring projects remain fully protected both during construction and after completion. While the situation is undoubtedly distressing for subcontractors, suppliers, and employees, handling this correctly can allow subcontractors to continue working, helping them to stay afloat, and ensuring that the project reaches completion.
Contact Kerry London Today
If you are an Employer, subcontractor, administrator, solicitor, or professional advisor involved in a project affected by contractor insolvency, we’re here to help. Whether you need informal advice or a formal review of your current insurance arrangements, feel free to reach out. Together, we can ensure your project or clients are fully protected, providing the peace of mind you need during this uncertain time. Contact us today for expert guidance.
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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.
Categories: Construction,
