What contractors can do to protect themselves

The collapse of Carillion has brought into sharp focus the treatment of contractors and raised questions about what they can do to protect themselves.

While Carillion was itself a UK government contractor, it subcontracted much of its work and employed contractors across all kinds of industries. It’s been estimated that up to 30,000 subcontractors and suppliers were left unpaid when Carillion went into liquidation in mid-January 2018, owing £1.5bn. Many are small businesses.

The government recently announced a £100m support package for individuals and small and medium-sized businesses caught up in Carillion’s demise.

This will let them apply for high-street bank loans without the traditional requirement to provide assets as security. The loans are being underwritten by the British Business Bank, which is 100% government-owned.

Business secretary Greg Clark said of the move: “We want to signal very clearly to small and medium-sized businesses who were owed money by Carillion that they will be supported to continue trading.”

Difficult business environments

Contractors often face a difficult business environment even outside the collapse of giants such as Carillion.

For example, research in 2016 showed that UK building contractors had to wait an average of nearly three months to get paid – which was a significant rise from an average of just over two months in 2015.

It’s been reported that prior to its collapse, Carillion was making some of its subcontractors wait as long as four months before they received payment.

Speaking to Sage Advice Newsroom, ContractorUK managing director Anthony Sherick says it isn’t merely Carillion’s collapse that sent shockwaves through the contracting industry.

He says: “The extraordinary aspect is that a private company of this size can freefall so quickly. It’s undermined trust as if you can’t rely on a huge government contractor, who can you rely on?”

He notes the collapse is helping focus attention on payments for contractors, due to the huge sums owed, and adds: “For contractors and small businesses, it is a reminder that a contract is only solid if it is paid, and no matter how big the company is, payments should be made on time.”

However, despite the situation, Sherick remains optimistic. He says: “Contractors are essential fuel to the economy due to their flexibility and specialist skills. They’ll always be needed for specific project requirements.

“The fall of Carillion was created through multiple failures. However, contracting market place opportunities have not been impacted and much of the slack has been picked up by other providers.”

Get clued-up

When asked what contractors can do to best protect themselves, Sherick explains that contractors simply don’t have many options. He says: “Contractor positions by default do not have the same protection as a permanent staff member.

“As always it is important that your contract is checked thoroughly and payment processes and schedules are agreed.”

Any contractor is surely likely to become aware of problems once a job has commenced. In the case of outright insolvency, you might want to examine the contract to see if you can claim on a parent company guarantee or performance bond.

However, one of the best forms of protection is to be as clued-up as possible about the organisation offering you work – ideally before you enter the contract. Here’s a handful of ways this can be done.

1. Monitoring filings

Companies House provides a goldmine of financial information about both companies and their directors, and aside from free searches, it’s possible to set up automated following for companies so you’re emailed any information they file.

As well as searching for the company you might also use the website to look up its officers (typically its directors) to discover their history.

2. Get news alerts

Monitoring news services for talk about the company isn’t a bad idea and can work even for smaller companies because often these are mentioned in trade journals or local news sources.

Google News is arguably the best news aggregator and you can set up automated email updates via Google Alerts – just enter the company’s name as the search term, then select to view the options and, in the “Sources” dropdown list, select “News”.

3. Monitor share data

If the organisation you’re considering working for is a public company then you can monitor share prices and benefit from the crowd intelligence of the marketplace.

Of course, while a large sudden fall in share price might be indicative of a serious problem, it can also be the result of a wild rumour – but there’s also little doubt that a persistent downward trend rarely indicates a healthy company!

For the majority of public companies registered in the UK, the London Stock Exchange offers a free email service where you can specify alerts if the share price drops beyond a certain percentage. You can also setup alerts for news about companies.

4. Search for court judgments

Although a court judgment isn’t necessarily the sign of a bad business, it’s certainly the case that bad businesses tend to run up lots of court judgments.

Trust Online is run by the Registry Trust and, for a small fee, lets you search for various kinds of court judgments plus administration orders and tribunal awards for companies within the UK, including areas such as company registration hot spots like Jersey.

Again, you might choose to identify the officers of the company and look into their personal histories.

Finally, you should include within your searches and frames of reference companies linked to the organisation looking to contract to you. It’s very unlikely larger companies in particular will exist as a single monolithic entity, and will probably have various spin-off companies relating to different functions.