RP Infrastructure advise clients on the full administration and insolvency lifecycle. We offer expert guidance and advice on how to navigate the uncertainty of insolvency in order to mitigate risk, restore stability and bring projects to completion with confidence in achieving the project objectives.
The current instability being experienced in the contractor market in the post covid environment has necessitated the requirement for greater rigour in assessing and addressing risk to avoid the financial, operational and reputational risks of a project either entering into administration and or insolvency. Over the last 18 months several NSW based tier one, two and three contractors have entered administration, leaving clients with the complex task of dealing with a risk ladened and distressed project. The high level of market volatility is set to continue to increase as market forces continue to place contractors in a position of vulnerability. RPI’s track record of over 25 years of specialised and trusted advisory services provides our clients with the confidence and experience required to navigate these uncertain times.
Administration Management Services
Should a client be faced with a contractor entering into administration on their project, RPI can be of immediate assistance, initially providing a baseline audit on the status of the project; including: providing an outline of requirements to be undertaken in terms of the contractual process, an assessment of the program and cost position and associated liabilities that a client may be exposed to, an assessment of the current quantum of defects and determination of a clients expected financial exposure.
Once the status of the works is understood, RPI develop a roadmap that steps out the required actioned to be undertaken to achieve project completion.
Key issues likely to be faced relate to compliance with legislative requirements and risks surrounding certification requirements for project completion, in particular the DBP Act, in this regard RPI will develop a register of outstanding certificates to ascertain the consultant and subcontractor documentation critical to the project. In evaluating whether a subcontractor may be retained for the completion of works, we will undertake a complete analysis of the Subcontractor’s financial and contractual status.
With our broad range of expertise RPI can also extend to advise responsibilities of the project Superintendent. At RPI we understand the focus of expertise necessary to reduce our client’s exposure to risk via the deployment of targeted and proven risk mitigation measures.
Risk Assessment Advisory
RPI identifies key risks through forensic analysis of the project’s financial position. Each risk is assessed and ranked before performance indicators are established to track the contractor’s financial performance for the remainder of the WUC.
A key indicator is the head contractor’s cashflow and program status. Through further analysis and up to date industry data comparison of output, including labour and on-site material supply, RPI can escalate the risk profile as soon as it arises.
Through Earned Value Analysis, RPI determines the level of project exposure. An understanding of the contracted value of works complete, the cost to complete and the real value of works will ensure the client has an accurate read on the financial position when considering their options.
In addition, RPI undertake a review of the works contract to assess possible exposure, with consideration to current market influences, highlighting the mechanisms available to counter potential claims.
RPI can then utilise the cumulative project risk profile to guide the client and their stakeholders in the development and implementation of an alternative delivery strategy, should a project be found to be in distress.
Risk Mitigation Advisory – Project Health Checks
RPI can be engaged to undertake a project Health Check, if a client is concerned about the potential risk default by a Contractor. In providing these Health Checks, RPI will assesses whether a Contractor may be facing financial and contractual difficulty in completing their obligations; allowing for expedited and proactive intervention. RPI’s services extend to the assessing works certification, allowing RPI to pinpoint trades which may be experiencing difficulties, oversight of subcontractor output, resourcing and financial matters.
Should it be required RPI can also provide specialist Clerk of Works services; with the benefit of a greater view of site daily activities. In RPI’s experience the embedment of this specialist within a project team allows for the forecasting of potential risks before they occur.
Read more below about how our senior team of experienced specialists have supported clients and restored stability throughout the administration and insolvency process.
Project in Review
RPI was engaged as Program Commercial Manager to support the delivery of government stimulus initiatives for one of NSW’s leading agencies. RPI was charged with the development, implementation and commercials management and governance structures necessary to support the delivery of 6,300 dwelling within the allocated funding limit of $2.1bn. The role included oversight of the development of program budgets and critical assessment of commercial risk across the program for the purpose of establishing realistic program ‘Cost to Complete’ assessments.
The program comprised the procurement and management of in excess of 500+ building and consultancy contracts within a highly volatile and reactive market. All contracts were procured in accordance with the clients strict procurement and governance protocols, including independent business and financial checks. Unfortunately, and even with appropriate checks and balances undertaken several contractors fell into varying degrees of distress with several building firms faltering resulting in the appointment of administrators and ultimately the termination and cessation of several of the head contract agreements.
Given the contracts were in some cases in excess of 18-24 months in duration the condition and viability of the contracted business entity was unknown. The impact of failure in the immediate term created a high degree of stress and uncertainty for both the contractor, sub-contractors, suppliers and ultimately the purchaser of the services, the contract principal. Definition of risk (time, financial and consequential including warranties) exposure became the immediate concern for the program. Immediate risk mitigation action was taken which included:
- Critical review of the condition of the works under contract including the extent of works completed relative to the extent contract payments;
- Critical review of the condition of the works under contract for the purpose of identifying defective or non-compliant works;
- Critical review of the head contract conditions and the Principals rights and obligations under contract including seeking specialist legal counsel. This includes the impact of delays and consequential loss as a result of contractor failure;
- Establishing communication with the contracted parties and their representatives (including appointed administrators); and
- Establishing alternate completion strategies.
In most instances the contract agreements were terminated due to their risk profile with the remaining works to be scoped and re-let to the market. Significant effort was required to ensure that the balance of remaining works was delivered in a manner that would mitigate the risk of future contract failure and provide a high degree of confidence and certainty to both the principal, contractors, suppliers and subcontracts. Procurement, delivery and contracting strategies were developed to support this initiative and to accommodate value for money outcomes.
Unfortunately, the ability to avoid contractor failure is limited, however it is critical that clients act proactively to ensure that their exposure to additional cost, delay, disruption and consequential loss is limited. It will take significant effort on behalf of the client its consultants and advisors to re-establish the contract and complete the works. The extent and varsity of the failure will be determined by the clients ability to act on an informed and expedient basis by implementing measures that best address the challenges and risks that have been identified.