In the current environment of high demand for labor and materials combined with a high risk of government intervention, construction lenders need to detect warning signs of a borrower’s financial difficulty at the earliest opportunity.

Requiring best practices for reporting, compliance, payment, and other construction functions is the best way to minimize losses. The following situations are red flags warning that something may be amiss.

1. The absence of a clearly defined project scope.

It’s imperative for all parties involved in a construction project—owners,...

Typically, a lender can rely on receivables as collateral to support revolving lines of credit and similar credit facilities. However, the remedies and protections for suppliers, labor, and subcontractors significantly impact a lender’s ability to rely on a contractor’s receivables. Because of these remedies, contractor receivables effectively have little reliable value, although hard assets of contractors can provide reliable collateral for loans. Understanding these remedies is key to determining how best to handle a distressed contractor.

The statutory structure for public...

During most of the 2000s the North American construction industry has been in recovery mode. The new millennium began with the cogeneration power bust post-Enron, followed by the residential construction boom and bust, which led to the Great Recession, and now the oil bust. However, most distressed contractors find themselves in trouble less because of the macroeconomic environment and more because of overconfident and overzealous decision making. This latest round of distress fueled by the oil crisis, for example, will certainly reveal the contractors that bet the farm on the upside of...

Since the late 1970s, federal, state, and local government agencies have established programs to help socially and economically disadvantaged entrepreneurs gain access to the economic mainstream of American society. While there are differences among these programs, in most cases the contracting agency establishes subcontracting set-aside goals that mandate that prime contractors use disadvantaged subcontractors for a portion of the work under the contract. It is not unheard of, however, for some programs to also establish goals under which a disadvantaged business serves as a prime and/or...

When a turnaround professional is engaged to assist a company that operates in an industry with the second-highest default rate in the United States contracting—he or she can be sure of a challenging assignment ahead.

Clearly, completing an engagement to turn around a contractor is a particularly specialized and difficult proposition. In addition to unique stakeholders that can jeopardize the continuity of a contractor client, including sureties, subcontractors/suppliers with lien rights, and unions, the difficulty of a contractor turnaround is often magnified by a bank that is not...