The building and construction industry can be fairly complex at times, especially with the number of sub-contractors and suppliers involved. We worked with a property developer that was in the process of building five multimillion projects at the same time.
Three of these contracts were profitable when we were approached and were continuing properly with subcontractors on those sites paid up to date in the normal course of trade.
However, on two of the sites the main employer was not paying for the works complete, claiming a dispute for variations to the projects.
The initial contract had a value of £3.5 million, but including the variations the final contract total had more than doubled to £7.4 million.
This left the company unable to pay sub-contractors. Cashflow was in severe stress and the developer faced a winding up petition.
These two sites put the viability of the entire company at risk and threatened to cease trading on all sites. This would have led to a massive insolvency, as all sites would claim huge sums for liquidated damages under Joint Contracts Tribunal contracts.
How we helped:
We started by putting the business into Company Voluntary Arrangement (CVA). This ring fenced funding for the subcontractors of the three successful sites, allowing the business to maintain on site and cashflow on these projects.
At the two problem sites we liaised with the employer to see what could be done. They agreed to draw a temporary line at the date of CVA and agreed a sum for the continuing build to completion, with the funds being paid into supervisors account to give security to sub-contractors for these two projects going forward.
While the sum paid resulted in a loss to the company and its sub-contractors for the work completed, at the date of the CVA an anticipated payment ratio of 51p/£1 was established with a 100% payment for work going forward and a significant improvement over the alternative situation of liquidation. The alternative would have been an estimated 7p/£1 for the sub-contractors of all five sites under development.
The company continues work on all five sites and despite the loss has continued trading. Without our assistance the firm would almost certainly have gone into liquidation with all creditors getting a minimal dividend, if at all, had things been allowed to continue in the same way.