Subcontractor Default

Construction Risk Experts Outline Looming Changes

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“Insurance reps, contractor risk managers and attorneys highlighted looming new risks at the Insurance Risk Management Institute’s construction conference, held in Orlando, Fla., from Nov. 12 to Nov. 15, that could spell new bottom-line impacts and a need for more vigilance.

Speakers also noted that subcontractor defaults remain a concern, even as markets show some signs of recovery. Luke J. Nolan Jr., a director in the Southwest at insurer Aon, said he was “worried about one-third of subs who are on thin ice.” Attorney Steven Charney said the cost of a default may be underestimated by a factor of three. “You have to factor in the cost applicable to redoing defective work in addition to the work not yet done,” he said. Charney said the average default claim is now one to 1.5 times the amount of the original subcontract. He urged general contractors to ensure they have “black and white” proof of the financial impacts of defaults,but also noted that many “are not capable financially of performing work they sub out.”

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Contractor house of horrors: what to do when subs go bad

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“I recently received a call from a general contractor and client with an all-too-common question: “I just had a subcontractor show up on site and tell me, ‘I’m going out of business and won’t finish the job.’ What do I do?”

Like death and taxes, another “sure thing” in the life of a general contractor is that at some point, a subcontractor will go bad. Luckily for the general contractor in this case, he had planned ahead.

By planning ahead, I mean the general contractor had in place a solid written subcontract agreement, which allowed the general to take immediate action to terminate the subcontractor, secure the work in progress and replace the subcontractor. The subcontract also required timely lien waivers and releases, so there was no risk of being stuck paying twice for the same work already done.”

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Survived the Recession? Beware Recovery Risks

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“If you’re blaming all the contractor and subcontractor defaults lately on the recession and how thin times lead to management mistakes, such as chasing unprofitable work, here’s yet another concern. Business in some sectors is picking up enough or may pick up soon and could create perils from recovery risk.

Based in Farmers Branch, Texas, Trainor Glass shuttered its nine locations Feb. 22 and has made no public statements since then. Trainor was one of two major cladding fabricators and contractors to get into financial trouble this winter.?? The other was the default and temporary shutdown just before New Year’s Day of Whitestown, Ind.-based ASI Ltd., a principal subcontractor on the $825-million Barclays Center in Brooklyn, N.Y. That default delayed completion of the arena’s enclosure and forced extra effort by the prime contractor, Hunt Construction Group, to stay on track for scheduled completion later this year.”

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Arena Subcontractor’s ‘Untimely’ Default Delays Enclosure

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“The default and temporary shutdown just before New Year’s Day of ASI Ltd., a principal subcontractor on the $825-million Barclays Center in Brooklyn, N.Y., has delayed completion of the arena’s enclosure and forced extra effort by the project’s prime contractor, Hunt Construction Group, to keep on track for scheduled completion later this year.”

Let Assurance Screening manage all your company’s subcontractor screening and Be Sure.

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Trainor Glass Default Raises Questions About Sub Vulnerability

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“Are capital-intensive subcontractors with substantial fabricating operations the most likely not to make it through to the end of the construction recession?

That’s a question prime contractors could ask in light of the latest major subcontractor default.

Austin Industries, the big commercial and industrial contactor, says of its four projects on which Trainer Glass Co. was serving as a subcontractor, three were nearly completed and are running on schedule and the fourth is in a very early stage and is unlikely to be affected.

Based in Farmers Branch, Texas, Trainor Glass shut its doors at nine locations where it had operations Feb. 22 and has made no public statement since then. Trainor was the second major cladding fabricator and contractor to shut this winter.

Looking back, was it possible to have detected signs of Trainor’s demise?”

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