Can the Quantity Surveyor prevent contractor insolvency?
Thursday, 10 April 2025
Posted by: Bert vd Heever
A recent article in the RICS Built Environment Journal highlights that construction is contributing disproportionately to national insolvency statistics in Britain.
Many quantity surveyors in South Africa are involved with projects where the contractor shows symptoms of financial distress.
The article warns that procurement must avoid the lowest-cost approach. "One such measure is that, when procuring works, employers should aim to appoint the most appropriate contractor rather than the one offering the lowest cost." writes Stuart Wigley the author of this article. In South Africa we have laws that complicate that selection, and in public procurement contracts the quantity surveyor may not even be asked to report on the most appropriate contractor.
Stuart's firm is increasingly seeing the use of two-stage tendering, pre-construction service agreements and enabling works contracts, which can offer greater assurance when it comes to agreeing the value of the main contract sum.
He suggests reviewing the project risks, and which can effectively be addressed and mitigated.
Risk reduction for the contractor entails: ..."the removal and diversion of existing services, and thus risk, on a site ahead of contractor selection. This prevents disruption to the main contractor and enables those tendering to price the project effectively, reducing the likely number of caveats and provisional sum allowances."
Another challenge in the British construction sector is the growing difficulty contractors face in obtaining the performance bonds required by many employers. Reports indicate that some organizations are withdrawing from the surety bond market or imposing stricter underwriting criteria.
However, performance bonds are just one form of assurance available to contractors. Other options include warranties, guarantees, and project bank accounts, the latter of which has become a key component of the JCT documentation used in many standard contracts.
The article warns that advances are no solution to cash-flow issues!
Difficulties in meeting forecasted cash flow often signal inefficiencies on-site and can sometimes indicate financial strain within the supply chain, affecting project progress.
In such situations, client organizations may be asked to support cash flow by making advance payments for incomplete work. However, on-account payments or forward funding are not sustainable long-term solutions for short-term cash flow challenges and should be carefully evaluated.
In my experience, advances to the main contractor prolongs the inefficiency on site, the quantity surveyor suffers as our fees are pro-rated to progress.
Eventually the contract is terminated and nobody wins.
Are there any tips and solutions you can share with us?
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