The Early Warning Signs of Subcontractor Default Part 2
In part one of our article, we discussed how incomplete contracts, increased changes orders, and a weak subcontractor-surety relationship are all signs that a subcontractor can potentially default on a project. In this second part, we will continue our discussion with two more signs: frequent supplier turnover and poor cash flow. If you are concerned that a subcontractor may default on a project or you are already dealing with a default, please consult a Brandon construction lawyer for ways to mitigate this problem.
Frequent Supplier Turnover
Frequent supplier turnover is another red flag. One of the foundations of the subcontractor’s success is their relationship with suppliers. Subcontractors need suppliers that are reliable and competitively priced. The supplier-subcontractor relationship is built on quality service, collaboration, negotiation, and performance. Subcontractors must build a solid relationship with their suppliers which includes paying them on time, placing orders on time, and reviewing their performance. Failing to do so will lead to a revolving door of suppliers which can directly impact construction projects.
A Poor Cash Flow or No Access to Cash
Insolvency in construction is the death of many subcontractors. Although it is becoming the norm to pay subcontractors as late as 90 days for completed project work, many of them cannot afford to carry the cost of a project for that long. Subcontractors that are restricted in their cash flow places projects at risk because they may not have the cash up front to pay their laborers or materials. Add to this the difficulty they may have with obtaining capital from lenders which only places them in a never-ending cycle of high-interest payments and a lack of cash to properly secure their projects to keep them moving.
A subcontractor’s default can wreak havoc on the entire project, which is why you should be proactive and contact one of our Brandon construction attorneys to ensure you manage the default properly.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.