Recruiters Should Be Cautious Over Terms – Expert Warns

Recruiters Should Be Cautious Over Terms – Expert Warns

May 10, 2023

It’s now more important than ever for recruitment businesses to perform thorough due diligence when giving any credit to contractors within the construction sector.

Following an already disappointing start to 2023 through January to March, a further 28 contractors and specialist construction businesses have fallen into administration during April 2023. There have now been a total of 112 contractor business losses so far in 2023, which is 26% higher than from January to April 2022.

Construction News reports that Chris Davies, Managing Director of DRS Bond Management, a surety broker business that helps construction firms provide financial insurance to third parties, stated that this trend is in line with expectations.

“Time is increasingly running out for zombie companies that were kept on life support by government-backed Covid loans,” he told Construction News. “I expect levels of administrations to remain higher than last year throughout 2023, but they should begin to level off in [the fourth quarter].”

Construction News go on to report that DRS Bond Management’s Davies noted that fixed-price lump-sum contracts lasting 12 months or longer, particularly where there was a “significant hiatus” between bid submission and start on site from mid-2021 onwards, “are almost guaranteed to have lost money”.

Tim Hunt an independent Chartered Accountant who has worked with the construction industry for many years comments: “Unless a company has sufficient reserves or access to emergency funding, it sadly only needs potentially one important contract to go bad to place many contracting businesses in the sector in serious financial difficulty.

“In these times when the sector is seen as risky by both lenders and insurers, getting access to emergency funding is of course also more difficult than ever before”.

We are, of course, very keen to support our clients by reminding anyone providing trading terms to their construction contractor clients that 2023 is going to be a critical time to reconsider and review the risk of each client case thoroughly and where possible and practical obtain appropriate insurance cover.

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