Producing an OCE for an initial Development Appraisal or to determine Site Residual Value In this article, we looked at how effective cost management...Read more +
How Construction Management can save your stalled project
Main Contractor Insolvency: how to get back on track
As a property developer, main contractor insolvency is the worst possible scenario for you to face. You’ve invested in a main contractor to deliver your project, but before your project is complete, they become insolvent.
With the project only partially complete, the resulting lack of activity means your project programme is falling behind and your investors want answers. Worse still, if your investors start to feel they have lost confidence in you, or you won’t be able to get the project back on track quickly, you are risk of them deciding to exercise their step-in rights.
If you’ve ever been through the experience of having your appointed contractor go into administration, liquidation or default, you will already know that your primary concern is getting your project finished and minimising any adverse financial impact.
However, appointing an alternative contractor can be challenging. You are likely to find many are unwilling to take on the risk of a partially completed project upon which they’ve had no quality control to-date. In the event you are fortunate enough to find a willing contractor, you can expect that to come at a premium, and with a list of caveats as long as your arm!
Whilst the situation is serious, there is an alternative solution that can minimise your losses and get your project over the finish line in the quickest possible time.
This is a scenario where construction management comes into its own.
The benefits of Construction Management to a stalled project
Construction management provides a highly flexible solution and by appointing an experienced consultant to act on your behalf, work on your project can recommence more quickly than it would under other procurement routes. In fact, you can recommence almost immediately (subject to matters involving administrators/liquidator for valuing any work-in-progress).
Your appointed construction manager will procure appropriate specialist trade contractors for each of the packages required to deliver your project. A significant benefit of this is that your construction manager can enter into discussions and negotiations with the subcontractors that were previously working for the main contractor. This means you can maintain guarantees and warranties for any work that commenced but was incomplete at the point of the construction manager’s involvement.
The construction manager will also procure the remaining trade contractors required to finish your project. By making best use of their established supply chain relationships, they will typically form a collaborative team of trade contractors who take a ‘what’s best for the project’ approach to completing your project.
The appointment of specialist trade contractors will often add greater value to your project and because each is responsible for their own packages of work you aren’t reliant on a single contractor being willing to accept the risk of another contractors’ work.
Overheads, profit and buying gains
As explained in this article, construction management means that your project overheads are lower as they are limited to the cost of your chosen trade contractors and professional team without, a profit allowance for the main contractor. You will also have eliminated the ‘worst case’ costings that probably formed part of the main contractor’s fee.
By directly benefitting from the buying gains, you can start to reduce financial losses for you and your investors.
As a result of the main contractor’s insolvency, you may need, or choose, to make variations to the project to reduce build time or make savings and get the project back on track. This is something that is made much easier thanks to the flexible nature of construction management.
A word of caution
Construction management places the project risk firmly with the client and is highly sensitive to the capability, and weaknesses of the person in charge. As such, it’s important that you appoint an experienced consultant to act on your behalf.
How Evolution5 can help you
Evolution5 are experts in construction management offering a pragmatic approach to your project to help you achieve your ultimate property development goals. Our construction managers have a background in contracting which means that they have real-life experience of delivering a project on-site. With this knowledge, they provide robust management of your project giving strong challenge when necessary, balanced with our approach to collaborative working.
This project is an example of construction management being used to secure the successful completion of a project that had stalled due to the collapse of a main contractor.
If you are concerned about a development project that has stalled or is at risk of falling foul of main contractor insolvency or financial instability, call 023 8040 5073 for a free initial consultation in complete confidence.