Builder goes out of business

This is a refurbishment disaster story. These stories are shown as examples of how good people can get in financial trouble when hiring a builder.

Introduction

In this example, a couple hired a contractor to build a £1,000,000 ‘eco’ house in their local area. The builder had almost finished the project but went into administration a few months before final completion.

This meant that suddenly their builder disappeared as a business entity and any monies that they had paid them were basically gone.

The couple terminated the contract of the builder in administration and hired another builder to carry out the work.

They then learned that there was a huge number of issues that the builder had not told them about.

The cost of fixing these issues, of finishing the building plus what they had already paid was well over their budget.

The couple investigated suing the builder but found out that there would be no point as they would likely never receive any money.

How had they procured their builder?

They had got several quotations from builders and chosen one.

The builder was selected from a competitive tender and was recommended by the Architect.

There are several steps they could have taken to reduce their risk but this process above is typical of how Clients procure their builders.

What went wrong?

The Client were sensible in that they hired the Architect to administer the contract and to sign off the key stages of work for payment.

Therefore, the Architect went onsite and certified the works were completed and so the Client paid the builder accordingly.

In the end the Client were decent to everyone and were unlucky that the builder went out of business and that the builder had made these mistakes.

Client tried to sue the Architect

Its interesting to note that the Client thought about suing the Architect. In the Clients eyes, the Architect had been paid to go onsite and confirm that the works had been installed correctly.

The Architect however denied liability as they had just certified works as completed not that the works were installed correctly. The Architect argued that if the works were discovered to be defective they would have issued an instruction for the works to be remedied. But because the builder had gone into administration the Architect could now not do that.

Conclusion

Its fascinating to see how trusting people can be when hiring a builder or consultant. They seem to think that by hiring someone to fulfil a task that that task will be completed competently and honestly. When it comes down to it, the phrase ‘buyer beware’ must always be remembered. When hiring anybody, the hirer must keep managing that resource until they complete the works correctly.

I will give you an example. A friend of mine hiring a website designer to carry out minor works to her website. She did not pay upfront and only paid when the works were complete. Now for her, works were completed when the designer said they were and my friend spent some hours checking the work was indeed finished. The designer was paid and then it was only weeks later that my friend discovered problems. Now, having paid in full, my friend had to go cap in hand and request these changes be made. In this case, the designer just stalled and did not do the work so my friend had to hire someone else.

Why is the construction industry any different? People are too used to being given refunds or replacement products in a retail situation. The construction industry does not work like that. There is no McDonalds of construction. The largest companies work on the largest projects and do not concern themselves with small projects.

So, if you have a small project (anything under £5 million pounds) you are going to be dealing with contractors who could easily go out of business. And even with the largest companies, even they go out of business too (google Carillion as an example).