| Throughout the industry press, the topic of conversation at networking breakfasts, you can’t escape the doom and gloom of the global credit crunch. But what does this really mean for the industry? First and foremost, it means that risk will increase. There is more chance of a party experiencing cash flow difficulties, or even going bust. There will be less work around, resulting in keener prices and greater competition. There will be an increased inclination for claims and disputes and when times get tough, there is greater chance of the parties looking to get out of a contract. It is essential that these risks are fully appreciated by the parties when negotiating and entering into contracts.
So what steps can you take to minimise these risks? Good contract administration and exercising considerable caution is the key. Firstly, all parties should review each other’s financial positions before embarking upon new work with unknown parties. Secondly, be vigilant about the choice of contract and particularly amendments to standard forms. Check the procedures for insolvency carefully and familiarise yourself with them. Be clear on specifics such as the ownership of materials in the event of non-payment and who has copyright should the designer goes bust. Also, look for extra security by including in your contracts bonds, parent company guarantees and collateral warranties. And, last but by no means least, sign the thing!
You can also watch out for signs, such as the non-payment of sub-contractors, works running behind programme, late delivery of materials and frequent changes of personnel, and monitor these closely.
Employers may choose to work with contractors and professionals they know and trust to reduce the risk, but with all those keen tenders floating around, will they be able to resist the temptation?
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