Contractor Financial Capability Assessments

Abstract

The insolvency rate of construction companies is much higher than that of other types of companies. In order to survive, many contractors may try to submit suicidally low bids and/or obtain work that is beyond their financial capability. The employment of financially incapable contractors not only affects the success of projects, but may also result in unrecoverable second order costs once they become insolvent. It is necessary therefore for clients to have a contractor's financial position assessed before appointment. In this paper, the various methods available for assessing contractor's financial capabilities are identified and described. The potential for methodological nomism is also examined empirically but no one best method was found. The paper concludes with a proposal for a new approach that combines both the objective and subjective aspects into a single, reliable and yet practical assessment method to satisfy the clients needs and requirements.