The administrator is setting defects and completion costs against what I'm owed
Our claim went in at the full account, and the administrator has used insolvency set-off to deduct back-charges we have never seen.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
What's happening?
When a main contractor fails, your account is netted off, which is called insolvency set-off. Anything it could have claimed from you is deducted from what it owes you. Only the balance gets a dividend, the share of each pound that creditors are finally paid. So the administrator or liquidator will look hard for these cross-claims: defects, the cost of finishing your work, and back-charges raised late. Every pound it deducts is a pound it does not pay a dividend on.
A claim lodged at its full figure, with nothing deducted, gets cut back on first reading. Cross-claims never raised during the job can appear for the first time in the reply to your claim. Some are genuine. Others are damage by other trades, work outside your package, or costs your subcontract never let the main contractor charge. Left unanswered, they all come off your balance. An administrator or liquidator pursuing a claim against you can also take it to adjudication.
The solution
Never accept or reject the cross-claims as one total. Ask for them itemised, then take each line in turn. Check whether your subcontract let the main contractor charge it, and whether any notice it needed was given. Check your records for whether it is your fault or another trade's, and what it would really cost. Accept what is genuine, so the balance you claim survives.
Insolvency Claim answers each cross-claim line by line. We value your account after what can properly be deducted, lodge it in the form the process asks for and negotiate it. If the administrator or liquidator brings a claim against you, we answer it, in adjudication if it goes there. Our Handover Pack shows what the gaps cost, and Insolvency Loss Prevention keeps your next job's records ready.
Example
Illustrative example. The scenario and figures are invented.
The facts
A flooring subcontractor lodges a claim for £87,000 in its main contractor's administration: one unpaid valuation, the work done since and its retention. The administrator's quantity surveyor replies with £31,000 of cross-claims. They are £14,000 of defects, £12,000 for completing the subcontractor's package and £5,000 of back-charges for cleaning and waste.
What happens
- The defects list is checked against the handover photographs. £8,000 is damage by later trades after the floors were signed off, and £6,000 is genuine.
- The completion cost is checked against the scope schedule. £9,000 of it is for areas the subcontract left out of the package, leaving £3,000 of the subcontractor's own unfinished work.
- The subcontract allows back-charges only after written notice, and none was given for the £5,000, so it is disputed on that ground.
- The answer goes to the administrator's quantity surveyor line by line, with the photographs, the scope schedule and the subcontract clause attached.
The cross-claims in figures
| Cross-claim | Claimed | Accepted |
|---|---|---|
| Defects | £14,000 | £6,000 |
| Completing the package | £12,000 | £3,000 |
| Cleaning and waste | £5,000 | £0 |
| Total set against the account | £31,000 | £9,000 |
The outcome
The administrator agrees the claim at £78,000 rather than the £56,000 its first reply left. The Handover Pack notes that the handover photographs, taken as a habit on every job, did most of the work.