The Importance of a Financially Stable Contractor – A Carillion Case Study

Sometimes when working on a project, you will need to appoint a third-party contractor to assist you with certain aspects of the project whether it be the construction, insurance (self-build or normal) or supply of materials, to name a few. These experienced specialists offer their products or services at a price, knowing that the chances are the average person would struggle to replicate the quality for the same price. Third party contractors can be especially useful in complicated areas like specialist self-build insurance or safely supplying rare or heavy materials for a project. However, third parties can also be problematic if they do not deliver.

A project can go from nearly finished and on budget to never being finished and massively over budget in a matter of months if a contractor’s finances are not secure. In the case of Carillion, their finances looked relatively ok for a firm their size right up until the collapse with only a few very small warning signs. Carillion were too optimistic in taking on risky contracts and relied too heavily on borrowing to offset their huge pension deficit. At a certain point the banks said enough is enough and refused to lend them any more money and Carillion was left in serious financial difficulties. This highlights the importance of properly vetting your contractors or suppliers as a little bit of time spent researching and investigating may be able to save yourself time and money.

So how do you check a third-party contractor is financially sound? The first place to look is the Company House website. Almost always the company will have a page on Company House. On there you will be able to see some very basic financial accounts which at least gives you the peace of mind the finances are being processed correctly and the company is profitable. However, this is often not enough to be sure. Further steps can be taken to achieve peace of mind such as looking at their track record and seeing what their previous clients have said about them, tax returns, current debts and debt expiry dates, details of any subcontractors and looking at any other contracts they are currently working or are due to work on in the future.

Remember to always carry out as thorough checks as possible when it comes to utilising a third party. It is crucial to check for strong finances, but it is also equally as important to check for reviews of what others have previously said about a third party. Here at Proaktive we pride ourselves on great customer feedback and that often means clients come to us first for their insurance needs. If you have a project you’re planning, then why not get in touch and we will be more than happy to provide a self-build insurance consultation.

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