Economically, everything starts and ends with the construction industry and the market itself is a useful barometer of what is happening out there (Guardian Economic Growth).
The association of business recovery professionals, ‘R3’, recently reported that late payments from a customer and the knock on effect from a bad debit is responsible for at least one fifth of UK corporate insolvencies in the last twelve months. The latest research reveals that this trend hasn’t improved since 2014.
Over half (57%) of insolvency practitioners identified construction as the sector with the worst track record for late payment.
Late payment problems and relatively high insolvency rates are not a coincidence. If the sector could diminish the extent of the issue it would see an improvement in its business survival rate.
2016 saw a number of high profile construction insolvencies including, Cardy Construction Ltd, LSC Facades Ltd, HOC (UK) Ltd, UK Construction Ltd and The Dunne Group. The knock on impact of these has been significant to suppliers and contractors, short term cash flow being the immediate concern.
Our market provides specialist construction wordings and bespoke policies that recognise the idiosyncrasies of contracting on JCT or NEC contracts, along with those supplying goods and services into the construction sector. Most insurers will provide coverage relating to applications (as opposed to traditional invoicing) and final account balances but others will provide additional cover for retentions, variations, day works and even pay when paid style clauses covering against upstream third party insolvency.
Choosing an insurance partner is not straightforward in any sector. Where contracting is involved, this is further complicated by the different types of cover on offer, as mentioned above, but also the speed with which insurers typically pay claims.
Leading construction insurer TMHCC recently reported that where some subcontractors were having problems obtaining valuations from The Dunne Group Ltd in administration, TMHCC were able to use their own quantity surveyors to value works removing the payment delay risk and avoiding the possible domino effect and support their clients cash flow.
The good news is that JCT, in recognition of the Construction Supply Chain Payment Charter, is intending to introduce specified payment dates after interim valuations that should lead to greater certainty throughout the supply chain. In short, monthlyI VD’s will be on the same day each month with payment due 7 days from valuation with a final payment date of 14 days. It remains to be seen whether this can be achieved, but certainly a step in the right direction.
Construction companies are often asked to provide some form of bond to the main contractor or the client either as part of a tender or, in agreement with being awarded the contract. Some companies will arrange a ‘bank bond’ for these, however, providing a ‘Surety bond’ instead can be a massive advantage to the firm as it is usually unsecured and off balance sheet, meaning it doesn’t eat into the banking facilities so allows more working capital for the company.
At TL Dallas, our Credit Insurance department supports the client with any trade insurance negotiations, protecting against the impact of a bad debt and arranges Surety bonds for the client to provide to the main employer to secure the contracts.
For further details and advice, please contact the Credit Insurance team in Bradford on 01274 465500 or Falkirk on 01324 717466.