Contractor Financial Instability - Early Warning and Response

The building industry in Australia has experienced significant economic stress due to rising material costs, labour shortages, and ongoing supply chain disruptions, which have increased the risk of contractor insolvencies. The Australian Institute of Architects has noted a rise in inquiries from architects seeking guidance on how to manage projects where contractors may be financially unstable. 

This note provides architects administering the contract with guidance on identifying early warning signs of financial distress and practical steps they can take to protect the project and the owner before insolvency occurs. It is intended for informational purposes only and does not constitute legal advice.

Signs that indicate that the contractor may be financially unstable include:

• submission of a claim followed by a request for payment in a reduced period (possibly due to pressure from creditors)
• overclaiming for work not yet complete or materials on-site but not fixed (particularly worrying where overclaiming occurs regularly)
• increased variations and extension-of-time claims, sometimes accompanied by persistent or aggressive follow-ups
• substituting subcontractors without prior notice
• delays in issuing compliance certificates, especially where payment remains outstanding
• difficulty in contacting the contractor or obtaining timely responses
• slowing progress on site with subcontractors working more slowly than expected or failing to come to site (possibly due to non-payment)
• general decline in workmanship or project management standards

Should these or other signs of financial problems appear: