14 minute read
Post COVID-19: Insolvency and Survival
POST COVID-19:
INSOLVENCY AND SURVIVAL
In the wake of the pandemic and enforced shutdown of the entire construction industry, what can offsite suppliers do to avoid becoming insolvent or falling victim to an insolvency elsewhere in the supply chain? Michael Gerard of Michael Gerard Solicitors offers his advice.
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With the havoc and tragedy wrought by COVID-19, very few of us will look back on 2020 with any fondness. Not just because of the deadly nature of the disease, but also because of the impact it will have on the UK and global economy. Although we are now in unchartered territory, it is not a question of if the UK is going to go into a recession, but how deep, how long and how damaging will that recession be?
As any good accountant will tell you, when entering a recession, insolvency work will increase. Unfortunately, it is those businesses that are allied to the construction industry, such as offsite suppliers that will be among the most vulnerable. As a result, it is essential in the coming months, that businesses take steps to ensure they are vigilant in managing their contracts and cashflows in order to avoid becoming another insolvency statistic.
Insolvency & Common Law
At common law, insolvency in isolation is not a breach of contract. However, its effect may result in the party becoming insolvent to wrongly repudiate the contract, thus allowing the other party to accept the repudiatory breach and bring the contract to an end. For example, where a timber truss supplier suddenly stops making deliveries to site in accordance with the agreed delivery schedule (because it is having its own supplier problems due to non-payment), it could be said that the timber truss supplier has abandoned the contract.
Sections 122(1)(f) and 123(1) of the Insolvency Act 1986 define insolvency as where a company is unable to pay its debts when they fall due for payment. This contrasts with standard forms of contract, like the JCT suite, which defines insolvency as when a party has entered into a formal insolvency procedure.
The Importance of Cash Flow
The age-old adage that profit is sanity, turnover is vanity, but cashflow is king, is just as relevant today as it was when it was first coined. So how does a goods supplier ensure a healthy income stream? Top of the list are advantageous payment terms and the implementation of a range of mitigation measures.
Ensure that payment terms are favourable. This could include invoicing once delivery has been completed (in lieu of monthly invoicing), and prompt payment, with perhaps a small discount as an incentive Specify that the T&Cs have a suspension of performance clause Ensure that the contract includes a termination clause for party insolvency that also sets out what happens post termination Incorporate a paid-when-paid clause for insolvency events for downstream payments. This will protect the business in case of an upstream insolvency Consider including a ‘Romalpa’ clause (retention of title). However, even with a Romalpa clause, it may not be enough to recover goods supplied if those goods are annexed to the structure Collateral warranties are particularly useful for third party funders and future purchasers of buildings where there are defects in the structure, but the developer may have ceased trading. Collateral warranties can also be good news for specialist suppliers if the warranty includes step-in rights and payment of outstanding sums.
The next couple of years are likely to be difficult for construction suppliers, but with good fiscal and commercial management systems in place, businesses will be placing themselves in a stronger position to survive the downturn ahead.
For more information visit:
www.mg-law.co.uk
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01. Michael Gerard is founding partner of Michael
Gerard Solicitors, a practising adjudicator and accredited expert in quantum and planning. He is a Fellow of the CIOB, registered adjudicator and vice chair of the East Midlands branch of the Chartered Institute of Arbitrators and registered adjudicator for RIBA.
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BTR: INNOVATION FOR ROI
Leading drywall manufacturer Siniat, and fire protection specialists Promat, hosted a roundtable to try and identify how the Build to Rent (BTR) sector can innovate design and construction to increase ROI, as UK society and the construction industry come to terms with the impact of COVID-19.
With the discussion taking place on the Zoom platform, the ‘virtual roundtable’ sought to break the conversation down into key themes surrounding market status, design and innovation, productivity and sustainability. Here are some key soundbites from the session.
BTR has been a successful market segment and has evolved quickly with offsite methods bringing improved levels of delivery and cost confidence. But will it continue in a post-COVID-19 climate to be an attractive investment proposition with increasing demands on amenity space?
Clare Harrison, Project Director,
Grosvenor Group: “We see BTR as one of the more stable sectors at the moment. People are staying at home more than they ever have done, so the emphasis on good quality homes that are well connected with flexible and adaptable amenity space is more acute. We are confident about the BTR sector.”
Tim Phillips, Head of Residential
Europe, CA Ventures: “In terms of investment and the size of the market, it’s a good time for BTR to go mainstream. With a loss of value in the office and retail environments, money is going into BTR. Additionally many wider lifestyle decisions are being delayed so people will be in the rental space for a longer period of time.”
Adam Challis, Head Of UK Residential
Research, JLL: “The sector is quite well suited to adjusting to a new normal. One of the hallmarks of the amenity space in BTR is its flexibility to be used in many different ways. It is important to try and replicate what we miss about being in an office environment without physically having to travel. A more fluid set of choices is something BTR does very well.”
Brendan Geraghty, Director, Geraghty
Taylor: “There is a third space that exists between work and home: the amenity space. BTR is quite far down the road with this. Flexibility and connectivity is extremely important and a major requirement plus how that space is consistently managed. We see the workplace turning into a ‘meeting economy’ where people can collaborate easily.”
Michelle Hannah, Associate Director,
CAST: “What COVID-19 has brought to the front is how critical the construction programme is. Schemes halting have had a significant effect, so how do clients protect the construction programme to deliver their returns when required? Offsite is a great way of doing that.”
Karl Wilkinson, Operations Leader,
Building, Laing O'Rourke: “Offsite hasn’t been immune to COVID-19 but it does de-risk restrictions. We managed to maintain productivity levels throughout the COVID period and the projects where we were employing a large amount of offsite were completely uninterrupted.”
Facilitator Darren Richards
Managing Director, Cogent Consulting
Adam Challis
Head Of UK Residential Research , JLL
Brendan Geraghty
Director, Geraghty Taylor
Michelle Hannah
Associate Director, CAST
Clare Harrison
Project Director, Grosvenor Group
Tim Phillips
Head of Residential Europe, CA Ventures
Chris Spiceley
Director Delivery Optimisation, Places for People
Karl Wilkinson
Operations Leader, Building, Laing O'Rourke
Chris Spiceley, Director Delivery Optimisation, Places for People:
“We have taken the COVID-19 pause as an opportunity to revisit how we do things and look at how we approach BTR in urban locations and importantly elsewhere. More area in homes and external space are needed by people not having to travel to an urban location regularly for work. So locations further away become attractive so we need different housing typologies.”
With layout flexibility a developing design trend defining BTR tenure types and influencing client briefs, how is the supply chain being engaged with to help influence decisions? And how are operators determining which technology and system to choose to deliver projects?
Clare Harrison, Project Director,
Grosvenor Group: “There is a whole suite of performance criteria to consider. Tenant safety is hugely important as are achieving green goals surrounding, sustainability, reducing embodied and operational carbon and waste. That is a massive priority for us and finding the optimum balance between all these performance criteria. Add in the ‘golden thread’ of data – these all come into play when we are considering what technology to choose.”
Melanie Davies
Market Manager (UK), Building Performance, Etex
Steve Warriner
Regional Specification Manager (South), Etex
Simon Scrase
Regional Specification Manager (North), Etex
Gary Ramsay
Editor, Offsite Magazine
Karl Wilkinson, Operations Leader,
Building, Laing O'Rourke: “You need to look at the whole building and how all the various components come together. You can’t cherry pick one method of offsite. We look at the most efficient mix of elements for the whole building. We also look to ‘standardise the invisible and bespoke the visible’.”
Tim Phillips, Head of Residential
Europe, CA Ventures: “Speed and certainty of construction is important but we have quite stringent criteria with our design guides for different markets. Our approach to building design is that it’s a ‘science more than an art’. So we are extremely specific on things like window sizes, thermal levels and acoustics, light and location of stairwells. We look at what is going to make a person move home – that is then seen as an investment criteria.”
Brendan Geraghty, Director, Geraghty
Taylor: “If there is a paradigm shift in BTR and residential more broadly, it is in clients and developers taking more control of the project. You have to define your proposition early and understand what you are taking to the marketplace both as an experience and as a product. Those companies that are very clear about that can align with offsite very well but you have to shift your mindset.”
Chris Spiceley, Director Delivery Optimisation, Places for People:
“With our internal teams we have the mantra that we choose the best solution for that particular scheme, so we can attune that solution to our in-house manufacturing to deliver more effectively as we have a diverse portfolio. We try and engage as early as possible so the process is easy – that is where the maturity is starting to come.”
Michelle Hannah, Associate Director,
CAST: “It isn’t just BTR, but affordable housing and those looking at long term asset ownership that will get the benefit of ‘bulk buying’ from supply chains. The challenge at the moment is finding those clients that want to push on and engage with supply chains early in the process and ask the right questions about construction earlier.”
Adam Challis, Head Of UK Residential
Research, JLL: “The broader trend across BTR is the stronger connection between the investor and the occupier. Historically, understanding what the customer wants has not always been what the real estate industry has been good at. But offsite is an enabler to more efficient end goals and a more resilient cash flow.”
Darren Richards, Managing Director,
Cogent Consulting: “It is clear there is a massive groundswell in client demand in knowledge about offsite, who are on a steep learning curve in understanding the various methods and systems. But productivity is high on the agenda and a ‘new currency’ for selecting main contractors.”
Innovation comes in many shapes and sizes. Small incremental changes and streamlining processes can deliver huge outputs. An increasingly important aspect of project planning and lifecycles is the ‘golden thread’ trail of building data and information, alongside the ubiquitous BIM platforms. But is there still a wider misunderstanding and disconnect or even dismissal of digital data and how it can prove offsite value?
Adam Challis, Head Of UK Residential
Research, JLL: “We need proof points and evidence beyond the qualitative about offsite so it can move from a variant method to mainstream. There is a requirement to track data better so we can understand and future-proof our buildings through the ‘golden thread’ and overlay that onto the building design. Data is a way to create better useability.”
Michelle Hannah, Associate Director,
CAST: “Data is the key to everything and we don’t harness it enough. We collect it all the time but we don’t use it. The idea that we don’t take the huge amounts of data that we have collected at the end of construction and use it to understand how our buildings operate is just crazy.”
Brendan Geraghty, Director, Geraghty
Taylor: “We must control the data. But it should be in the design brief – ‘how do you want your data presented back to you?’ Understanding what the customer wants and how the dwelling will shape-shift to accommodate changes – whether a volumetric or panelised system. We have a lot of the information that can predict these dynamics.”
Karl Wilkinson, Operations Leader,
Building, Laing O'Rourke: “We put our emphasis on the whole building delivery model not just how quickly we can top out the frame. Once you get to a position where you have a common set of components together, then you should be able to shorten the process and get to site quicker, bring the fit-out start date earlier and complete earlier.”
A global challenge for all those operating in the built environment surrounds sustainable design, stricter corporate social responsibility (CSR) requirements, the concept of the circular economy and how to achieve low/zero carbon targets. Certainly there are questions surrounding thermal mass but how and what is sustainability? And how are these decisions being influenced?
Clare Harrison, Project Director,
Grosvenor Group: “Sustainability and our company green commitments has shifted the dial on the conversations we are having and briefs that we are setting for our design teams. We are focusing very clearly on the carbon targets we have set for 2030. Offsite is one of the ways that we will be using to reach those targets.”
Tim Phillips, Head of Residential
Europe, CA Ventures: “It’s not just the reduction of waste and improvement of project timescales but the longevity and future-proofing of the building. Smart controls reduce your carbon footprint. We also need to introduce more ‘wellness’ into our buildings but sustainability is very important to our investors. People are happier to move into a greener building and will stay there longer.”
Karl Wilkinson, Operations Leader,
Building, Laing O'Rourke: “Carbon and sustainability is high on our agenda. There is a material side and a labour flow side of that, but when you look at the whole system of the building, there are decisions that you can make that are intrinsic to the carbon question. Facades and air leakage for example can have a huge impact on your operational carbon.”
Adam Challis, Head Of UK Residential
Research, JLL: “One of the real storylines that has accelerated post COVID-19 is the wellbeing and social construct, what we are doing for our tenants and customers and being clear in delivering an end goal of a quality home and quality life. Also, investors/ clients are looking at well governed businesses – a well-run, responsible business is a more investible business.”
