, Britain
On Monday 15 January 2018 a building subcontractor in Peterborough heard on the radio that the main contractor on four of his five sites had gone into compulsory liquidation. The company had been in trouble for months, but liquidation rather than administration was still a shock, and it arrived before the vans had finished loading.
By half past nine the sites were closed. By eleven the office had a figure: two months of work applied for and never valued, plus every pound of retention held on four jobs going back three years. It was more than the firm had made in profit in either of the last two years.
On Friday the wages still had to be paid. So did the builders' merchant.
The money you are owed is not a debt until somebody agrees what it is
Construction is paid in stages against applications rather than in a lump at the end, and the Housing Grants, Construction and Regeneration Act 1996, as amended in 2009, sets out how that has to work. The subcontractor applies for the value of the work done in a period. The payer must respond with a payment notice saying what it considers due, and if it wants to pay less than the notified sum it has to serve a pay less notice in time. If it serves neither, the sum applied for becomes the sum due.
That regime is strong when there is somebody at the other end of it. A liquidation removes the other end. The applications sitting unanswered that Monday had no valuation against them, no payment notice, and nobody left in the company with authority to sign one.
Which is why the first thing a subcontractor does here is not legal. It is to record, site by site, exactly what was built: dated photographs, delivery notes, site diaries, signed daywork sheets, the last agreed valuation. The claim in the liquidation is assessed off that record, and the record stops being creatable the moment the gates are chained.
Retention is your money sitting in somebody else's account
Retention is a percentage of each payment held back by the payer as security against defects, commonly three or five per cent. Half is usually released at practical completion and the balance at the end of the defects liability period, which is often twelve months and can be considerably longer.
Two things about that deserve saying plainly. Retention is not held in a separate account unless the contract says so, and it usually does not: it sits in the main contractor's working capital and is used like any other money. And retention on a job finished two years ago is still outstanding, so the firm with the longest relationship has the most at risk, not the least.
When the company goes, the retention goes with it. It is not a deposit you can reclaim. It becomes an unsecured debt, indistinguishable in the liquidation from the unpaid applications, the disputed variation and the invoice for the skip.
An unsecured creditor is at the back of a queue that never reaches them
The order of payment in a liquidation is set by statute and is not sympathetic. The expenses of the winding up come first. Then preferential creditors, which covers employees' claims for arrears of wages up to a limit and their holiday pay. Then a prescribed part is carved out of what the floating charge realises and set aside for unsecured creditors, which sounds generous until you notice the cap is one sum for the whole company, not a sum per creditor. Then the floating charge holders. Then, if anything is left, the unsecured creditors.
A subcontractor is in that last group. The dividend, if there is one, is quoted in pence in the pound and paid years later, against a creditor list running to thousands of firms.
The smaller recoveries are the ones that actually arrive. VAT already accounted for on an unpaid invoice can be reclaimed as bad debt relief once the debt is six months overdue. Credit insurance pays out if it was held, and the awkward truth of most large failures is that cover was pulled months earlier, which was the clearest warning anybody got.
Adjudication is quick and useless against a liquidation
Adjudication is the reason the construction industry gets paid at all. A party to a construction contract can refer a dispute at any time and get a decision inside twenty-eight days. Against a solvent main contractor it is a serious instrument.
Against a company in liquidation it produces a decision you cannot turn into money. Proceedings against the company need the court's permission. The insolvency rules set off all mutual dealings between the two parties into a single net balance, so your claims and its counterclaims collapse into one figure. That figure is an unsecured claim like every other. Suspending performance for non-payment gets you off a site you are already off. A statutory demand against a company already in liquidation is a letter to the Official Receiver.
What is worth doing instead is practical. Terminate under the insolvency clause rather than walking off. Get your plant, tools and unfixed materials off site quickly, and check what the contract says about materials already delivered, because vesting clauses favour the payer. Then talk to the client, who still owns a half-finished building and is about to have to engage somebody to finish it.
Four sites with one main contractor is one customer
The lesson of January 2018 was one most firms already knew and had not acted on. Credit risk attaches to the counterparty, not to the job. Five sites for one main contractor is not a spread order book. It is a single customer with five addresses, and if that customer stops paying, everything stops at once.
The warning signs arrive in a fairly consistent order. Valuations start being disputed rather than agreed. Certification slips by a week, then a fortnight. Payment moves to the end of the following month. Credit insurers reduce cover on the name, which your merchant hears about before you do.
The defences are unglamorous: fewer eggs in one basket even at a lower margin, retention negotiated down or bonded, project bank accounts where the client will agree to one, better records, and a willingness to stop work early on a slow payer rather than late on a failed one.
Where this shows up in the game
The Main Contractor starts a building subcontractor in Peterborough in January 2018, on the Monday morning after the liquidation, and runs for eighteen months. It is marked Hard. You begin with borrowing somebody else agreed to, and with one customer who was most of your revenue and is no longer there, which between them describe the whole problem.
Two months of applications and all the retentions on four sites are written off in month one, and nothing you do afterwards brings them back. You choose whether to finish those sites for whoever picks them up, at a worse rate, to walk off, or to bid for the replacement package. Suppliers cut your terms from thirty days to fourteen for six months, and the wages are due whether or not anybody has valued your work. You are scored on the cash in the business at the end of the eighteen months, with £120,000 as the target, which is deliberate: chasing the administrator earns nothing and replacing the work earns everything. The page for The Main Contractor lists the starting position and the rules.
The seed is fixed at 600017, so every attempt meets the same Britain, the same competitors and the same replacement work, and the scores mean something against each other. It runs under ironman rules: one save, and what happens happens.