How should you protect materials following insolvency

Question

How should you adequately protect Materials (on and off site) in the event that your contracting party is insolvent ?

Tom Spilsted · Answer

For me the protection regime starts much earlier than when a contracting party becomes insolvent.

Payment for materials on site is much easier to agree to under standard form contracts and the terms of the associated subcontract forms offer a transfer of ownership process with practical points to avoid the usual disagreements.

If a contracting party goes insolvent, say the subcontractor, receivers often try to recover the materials claiming they have not been paid for. Maintaining good site records of the materials included in the valuation and locations when valued such as photographs and notes on the valuation spreadsheet is essential.

If the main contractor is insolvent then the subcontractor is also advised to keep similar good records and details of payments received. They would then need to make application to the receiver for release of the materials if payment hasn't been made. I have known of occasions though where unidentified operatives have obtained access to a site and removed materials.

Where payment for materials offsite is being considered, and this is often required with unitised cladding and other factory manufactured products, a vesting agreement often 3 way between say subcontractor / main contractor / Employer is the approach used. Where they often fall down when needed in cases of insolvency is -

The attached list of material being vested is not completed in an orderly and precise manner with clear descriptions and dated stamped photographic attachments. Often the materials themselves are not adequately identified as the property of the Contractor or Employer and this can lead to confusion in the event of insolvency of any party.

The vesting agreement should always specify insurance cover is provided as most project contract all risks policies (CAR insurance) do not cover materials stored offsite. A copy of the policy cover note must be attached to each valuation's vesting agreement.

An alternative possibility to consider is the use of advance payments for materials procurement with the backing of an advance payment bond, this type of bond is typically on demand, so as long as it is from a reputable institution ( I would recommend that the institution is UK based as enforcement even in island territories such as Jersey and Guernsey is extremely difficult).

One of the key checklist items is never agree to pay for materials that are not a finished product - a bundle of even say Schuco manufactured sections is still a bundle of aluminium sections with no certainty that they are the correct section, length etc.

How should you protect materials following insolvency

Insolvency

Andrew Crawford

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