Design Engineer/Contractor Bankruptcy: Considerations for Debtor and Creditors
The bankruptcy rate within the American construction industry has been increasing in recent years. Despite its increasing frequency, many construction industry professionals remain unaware of what a bankruptcy proceeding entails. This lack of awareness is cause for concern to both debtors and creditors. This paper, therefore, is designed to, on an overview level, lay out the factors construction debtors and creditors must consider when deciding whether to file for bankruptcy. Assuming that the decision to file for bankruptcy has been made, the paper presents an analytical overview of the bankruptcy code in terms of its operative chapters, under which a construction‐related debtor might seek relief from creditors. Since the decision to file for bankruptcy fundamentally changes business relationships, models of both Chapter 7 and 11 proceedings are included to illustrate common occurrences. It is hoped that this paper will prepare construction‐related debtors and creditors for dealing with the possibility o...
The characteristics of changes in construction companies to become insolvent by size following macroeconomic fluctuations
In the present study, individual groups of construction companies were first classified according to size, and then the processes of changes needed for them to become insolvent were examined utilizing KMV models. Another objective of the present study was to analyze the relationship between macroeconomic fluctuations and the changes needed for construction companies to become insolvent (based on their size). In the present study, construction companies were classified by size, and the relationship between the changes required for insolvency of construction companies and macroeconomic fluctuations was analyzed. To analyze the relationship, vector error correction models (VECMs) were constructed. Through the analysis, as perceived intuitively, large companies were determined to be financially sounder than small and medium sized companies. In the case of small and medium sized companies, the trend of changes needed to become insolvent was extremely insensitive to economic fluctuations. That is, it was identified that in the case of relatively small companies, poor financial environments were constantly maintained. Large companies were generally more financially stable, but they responded very sensitively to business. Consequently, their financial conditions deteriorated more rapidly than small or medium sized companies when rapid economic fluctuations occurred.
DECISION CRITERIA IN CONTRACTOR PREQUALIFICATION
Contractor prequalification involves the screening of contractors by a project owner, according to a given set of criteria, in order to determine their competence to perform the work if awarded the construction contract. This paper presents the results of numerous interviews with construction professionals who have extensive experience with contractor prequalification. A generic logic has been identified in the prequalification decision‐making process. Three distinctive parts of this process are: the characteristics of the decision maker; the characteristics of the contractor; and the resulting decision. Pertinent parameters relevant to the decision maker are outlined. Data sources for determining the characteristics of a contractor are also described. Current decision‐making strategies are presented along with example applications of each. Biases from the construction owner's perspective that impact the contractor prequalification decision have been identified.