If you are a sub-contractor working for a main contractor or developer, have you wondered how you would get paid if the main contractor collapses financially?
The Mainzeal collapse in 2013 highlighted the dangers that small businesses face when a main contractor gets into financial difficulty as hundreds of sub-contractors were left with significant monies owing, and little chance of ever getting paid.
So what can you do?
A specialist provider of insurance to the New Zealand building industry, Builtin New Zealand, offers an insurance policy to protect sub-contractors against the risk of the main contractor getting into financial difficulty.
Called Trade Payment Guarantee Insurance, it can be a financial lifeline to small businesses protecting them from payment default if their main contractor goes bust.
Builtin Director Jim Rickard says, “We created our payment guarantee policy in the wake of the collapse of Hartner in 2001, which sent many of their sub-contractors to the wall. While big companies can get trade credit insurance, it’s the small and medium-sized firms that often can’t recover if they aren’t paid for what can be weeks and even months of work”.
The construction industry in New Zealand is highly fragmented, comprising thousands of sole contractors, small family firms, and relatively few larger suppliers. Unfortunately, many small firms see insurance as an unnecessary expense, rather than a cost of doing business which can help them overcome big risks such as the liquidation of a major customer.
With premiums starting from as little as $950 + GST the policy is an affordable way of safeguarding your business against a main contractor going bust.
Policy Key Facts
What’s covered:
If your main contractor becomes insolvent the policy will pay 75% of the money owed, up to a maximum of $50,000 per claim.
Option 1 Option 2 Option 3
Limit Per Year $25,000 $50,000 $100,000
Franchise* $2,500 $2,500 $2,500
*A franchise means that claims for amounts below the franchise limit will not be accepted. However, for claims above the franchise limit no excess is payable.
What’s not covered:
- Contracts already in place prior to the policy being taken out
- Defaults occurring within the first thirty days of the policy starting
- Contracts where there is no written contract with the main contractor
Get in touch with your Abbott Group broker to discuss putting some cover in place for this very serious risk to small businesses.
