De-Risking Builder Recommendations

IPEX has (somewhat unintentionally) become the ‘go-to’ solution for managing tricky projects through to completion (distressed projects currently make up ~30% of all active IPEX projects) but the truth is, we’d rather the project not get into trouble in the first place. By the time payment issues are identified:

• tensions are high between developer, project manager & builder
• subcontractors are angry given they’re often owed significant sums of money across multiple claims and,
• cost-to-complete is almost always double what it ‘should’ be

Whilst we can ensure that any future payments remain in the project & reach the intended recipients, we can’t change the fact that a big chunk of the projects’ profitability is already gone. It’s an expensive exercise for the project owner, and an experience that is particularly galling once they learn that these predicaments are largely avoidable.

‘Point in time’ DD checks are objectively failing: distressed builders are regularly being awarded new contracts

In each case referenced above, the builder had been assessed as having the financial capacity to complete the project. And each time, that assessment was wrong. 

It’s easy to lay the blame with the project manager who made the builder recommendation, but it’s actually a limitation of the assessment process itself; it’s near impossible to verify a builders’ true financial position through due diligence alone.

Whilst many may suspect that they’re not always getting the full story; we know they’re not! Our role in managing payments on ‘distressed’ projects gives us a unique insight; not only are many of these builders actively tendering while unable to meet existing financial obligations, they’re regularly passing DD & winning new contracts! This is despite many of these projects being backed by large bank & non-bank lenders with extensive financial vetting processes!

‘Test’ builder due diligence outcomes & protect against future cashflow issues/insolvency events 

Not only can IPEX help you avoid recommending a builder that is already in financial distress/trading insolvent, it also shields the project against any unforeseen cashflow issues the builder may encounter during construction. Cost overruns on other projects can very quickly become your problem.

Of course, whilst your primary motivation may be to reduce client exposure, it doesn’t hurt to avoid the significant reputational hit that comes with recommending the wrong builder. 

HOW PROJECT MANAGERS ARE REDUCE CLIENT RISK

Tender Assessment / Builder Recommendation	IPEX helps you get to the truth: are they willing to accept this contract under the condition that all progress payments are ‘ring fenced’ to this project? It doesn’t matter how creative they’ve been with their accounting; if they do need to ‘borrow’ your funds to cashflow other projects, they’ll likely withdraw their interest & find a non-IPEX project.
Progress Claim Assessment / Certification	With each new progress claim, PM’s can quickly validate the builder ‘stat dec’ to confirm who has been paid, when & how much*. You can also identify non-payment of subcontractors & suppliers immediately & take steps to address before certifying the most recent claim
Builder Insolvency / Payment default event	Should a payment default event occur, the impact to the developer is minimised. Progress payments already made to the builder via IPEX have either been distributed to approved subcontractors & suppliers or, remain in the account – the funds can’t be siphoned off to other projects/accounts in the period leading up to the appointment of administrators.  The developer/project manager also receives full account transaction history, removing much of the work associated with substantiating creditor claims & establishing their exact position on the project.

*Standard developer portal view shows payment as % of contract value  / Open book developer portal view shows payment values.

IPEX is FREE for project managers; developers pay a one-off, upfront fee to licence IPEX to their project.

Want to see how it works? Book a free demonstration here.