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Rising contractor failures, sustained inflation and a hardening of the surety bond market are just some of the elements forcing construction firms to rethink how to avoid, or at least better mitigate against, a supply chain member going insolvent.<\/p>\n
Resilience increasingly depends on deeper supply chain insight, more proactive communication and closer partnership with insurance brokers, who can help structure and negotiate fit-for-purpose protection.<\/p>\n
For Higgins Group, a contractor\/developer with a long-standing supply chain, its approach is built on candour.<\/p>\n
Group finance director Mark Francis and supply chain manager Oliver Burrows say transparency
\nis the most effective safeguard they have. Their emphasis is on \u201copen and honest conversation\u201d with subcontractors, an approach they argue has protected the business from the worst consequences of distressed suppliers.<\/p>\n
Since difficulties escalate when subcontractors conceal them, they encourage early disclosure before problems turn into a failure.<\/p>\n
\u201cThere is nothing that beats an open and honest conversation with that subcontractor,\u201d says Francis. \u201cIt insulates you an awful lot from subcontractor insolvencies.\u201d<\/p>\n
\u201cIt\u2019s a warts-and-all conversation that goes both ways,\u201d adds Burrows. \u201cIf they\u2019ve got a cashflow problem and need help, don\u2019t hide it, because it causes us more pain if they do become insolvent.\u201d<\/p>\n
Burrows\u2019 visibility across subcontractors, procurement activities and workloads allows Higgins to spot pressure points and avoid overloading firms that might otherwise stretch themselves beyond capacity. Although this can mean advising a subcontractor to defer a package, Burrows says growth should be \u201corganic\u201d rather than from risky outsized turnover that may destabilise a business.<\/p>\n
The same principle applies to financial health monitoring. Higgins uses credit-rating agencies, daily alerts and market intelligence from material suppliers to identify signs of stress. If issues surface, the team initiates a conversation. Higgins might accelerate payments or process tender applications early. Although Burrows emphasises there are limits to what any contractor can do, early engagement enables the business to provide support where possible.<\/p>\n
While Higgins doesn\u2019t often use surety instruments, it occasionally requires performance bonds or parent company guarantees for the higher-risk trades such as M&E, given its programme criticality and the difficulty of stepping into partially completed work.<\/p>\n
Burrows notes that surety is currently \u201charder to achieve\u201d due to heightened financial scrutiny, driven by major insolvencies in recent years. As a consequence, contractors seeking financial instruments like bonds are finding the process more challenging, and more dependent on professional support.<\/p>\n
This is where insurance brokers play a significant role. Wendy Sumner, director, GB Construction at Willis, describes a market in which insolvency risk is now \u201cone of the most acute exposures\u201d facing project owners. High inflation, labour shortages, elongated payment cycles and fixed-price contracts agreed in very different economic conditions have driven the surge in failures. Construction continues to produce the highest number of business insolvencies in the UK, and Sumner stresses the ripple effect of a single collapse that includes project delays, cashflow disruption and expensive disputes.<\/p>\n
Brokers are increasingly required to help contractors navigate this environment, not only by placing insurance but by advising on risk allocation, contract negotiations and financial risk tools. One area Sumner highlights is trade credit insurance, which she describes as a \u201ccashflow safety net\u201d. By protecting receivables (goods or services provided but not yet paid for), it bolsters a contractor\u2019s financial position and improves access to lending and bonding facilities.<\/p>\n
Another area where brokers offer support is the toughened surety market. Sumner explains that securing performance or advance-payment bonds is now often a prerequisite for public sector and major infrastructure work, yet many contractors cannot meet the stringent criteria. Brokers can strengthen submissions, ensure the right surety markets are approached and guide contractors through the process.<\/p>\n
However, one of the most significant broker contributions concerns risk allocation within construction contracts. Sumner says employers are pushing for \u201cvery high limits\u201d, sweeping indemnities and contractual terms that transfer disproportionate risk to contractors. Brokers step in to negotiate more balanced arrangements, ensuring contractors only take on risks that can be reasonably insured and are appropriate to the delivery model.<\/p>\n
The importance of this multiplies in joint ventures or alliances, where liability structures can become unbalanced or unclear. \u201cIf we\u2019re involved, we can carefully structure and give clear contractual guidance,\u201d she says, \u201cwhich means you\u2019re able to take on appropriate, insurable risks, without having to compromise the integrity or profitability of the project.\u201d<\/p>\n
A powerful option brokers advocate in mitigating the impact of an insolvency is the Owner Controlled Insurance Programme (OCIP). Considered by Sumner to be the \u201cgold standard\u201d, an OCIP places all project insurances under the control of the employer or developer rather than relying on the contractor to arrange them. She explains that if a contractor becomes insolvent mid-project, insurance arranged by that contractor typically collapses with it, leaving the works uninsured and the project exposed. Under an OCIP, insurance continuity is maintained because the employer holds and manages the policy.<\/p>\n
Historically, OCIPs were used to reduce duplication, improve claims handling or to meet lender preferences. More recently, their value is also in insulating projects from the immediate operational and financial shock of a contractor collapsing. As Sumner puts it, insolvency \u201cisn\u2019t just a financial event, it\u2019s an operational risk\u201d.<\/p>\n
She underlines that an OCIP minimises that operational disruption by enabling continuity, whereby a replacement contractor can be brought in rapidly. The OCIP avoids uninsured periods, protecting materials already on site and maintains compliance with funders\u2019 requirements.<\/p>\n
Across both Higgins and Willis, there\u2019s a strong message of consistency. Strengthened monitoring, more probing pre-qualification, and strategic use of insurance solutions have all intensified over the past 18 months. For Higgins, this has asked more of its supply chain partners, but it has also fortified relationships.<\/p>\n
In a market where insolvencies continue to mount, resilience comes not from any single mechanism but from the collective disciplines of transparency, continuous monitoring, strategic advice and well-designed insurance solutions.<\/p>\n