Minimising The Risk of Your Contractor Going Bankrupt  

by Pool Builders on 11-07-2011 in Articles

As a landscape designer, working in these hard economic times, you can't have failed to notice more and more small garden businesses going to the wall.
Whether they are nurseries or landscaping firms, it's hard to make a living right now, jobs are scarce and margins tight.
A worst case scenario is for your contractor to go under, halfway through a job, potentially costing your clients $1000's and you a monumental headache, trying to find another contractor to finish the work.
You may even be held partly liable, swept up in any legal action. So the designer needs to be doubly careful when selecting contractors to tender and also, be seen to be doing their due diligence.
Taking a contractor's word, that they are financially solvent is no longer adequate. Before signing the contract, bank references should be taken up and the client should be advised in writing to do a credit check with a firm such as Dun & Bradstreet.
However even this may not be enough. On larger jobs, lasting several months, the contractor could still run into difficulties. Either through poor management or in the event that one of their suppliers going bankrupt and taking them down in the process.
There is little you can do about the latter, but you can help manage the contract and at the same time protect your client from paying too much up front before work is completed and materials are on site.
The first and most important document you should insist on, before work starts on site is a daily work schedule. This is a day by day breakdown of what work will be carried out, to include; in what order the jobs are to be completed and the number of man days involved.
Small contractors are sometimes reluctant to provide these, as they involve hours of preparation, but I make this a contractual requirement and won't let a project start before the client and I have both received a copy.
This document allows all parties to monitor the progress of the job. The designer and client can see at a glance, if the work is on schedule and the contractor can also plan when materials and plant should be ordered, so the work is not delayed due to material hold ups.
In fact, once the contractors see the benefits of this document they will continue to prepare one for each and every job they do. Not only will this help protect your clients by keeping the job on schedule it will also likely improve the contractor's profitability.
Secondly the designer can protect the client by 'Project Administering' the contract. Note the word 'Administer' NOT 'Manage' - Most designers are not qualified to 'Project Manage' a site, as this implies quality control and would require the designer to be onsite throughout the build.
The designer can remind the contractor to order materials in good time to avoid delays and is also in charge of signing off the weekly/monthly invoicing.
This involves making sure that the contractor only invoices for work completed; and for materials that are already on site. An agreed % is then held back (usually 5%) until the penultimate invoice when only 2.5% is withheld until the final certificate of completion is issued (usually after a defects liability period of 6 months)
By going through this process, the designer is ensuring that the client never overpays before work is completed. In the event that the contractor does go bankrupt, the client should still have enough funds to bring in a second contractor to finish the job.
Some professional bodies guarantee their members, so it would be worth looking carefully at these before choosing contractor. Organisations like SPATA (Swimming Pool and Allied Trade Association) in the UK guarantee that if one of their members goes under part way through a job, another member will finish the work for the outstanding agreed contract sum.
Finally a last piece of advice is to split large contracts down into smaller ones. Consider different contractors for different parts of the job to spread the risk.
Ground workers for excavation, drainage and contouring; pool contractors for swimming pools; pond and lake specialists for water features; stone and masonry specialists for hard landscape features such as paving and walls; turf/sod contractors for lawns; Irrigation engineers and lighting technicians; and finally soft landscape specialist.

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