Going Concern Checklist for Construction
Tailored going concern assessment for construction entities. Covers industry-specific indicators including project pipeline, bonding capacity, contract disputes, and subcontractor payment chains.
Going Concern
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Going concern assessment: Construction
Construction entities face acute going concern risks because of the project-based nature of their revenue, the gap between cash expenditure and payment receipts, and the cascading effect of a single problem project on the entire business. A cost overrun on a major contract, a dispute over a variation order, or the insolvency of a key subcontractor can rapidly consume the thin margins typical of the industry.
Key risk factors: Construction
Key construction going concern indicators include: a declining or empty project pipeline beyond current committed work, disputes on major contracts that delay progress payments, inability to obtain or renew performance bonds and guarantees, subcontractor insolvency or refusal to work due to late payment, retention receivables that are ageing beyond normal periods, and cost overruns on fixed-price contracts that create onerous contract provisions.
Project pipeline and order book — assess whether the entity has committed work extending at least 6–12 months beyond year-end. A declining tender success rate or absence of new awards is a leading indicator.
Contract disputes and claims — a disputed variation order or a claim against the entity can lock up significant cash in retentions and require provisions that erode equity. Assess the status of all disputed contracts.
Bonding and guarantee capacity — construction entities rely on performance bonds and bank guarantees to win new work. If surety providers have reduced capacity or banks have tightened guarantee facilities, the entity's ability to win new contracts is impaired.
Subcontractor payment chains — late payment to subcontractors can trigger lien rights, work stoppages, and reputational damage that prevents the entity from bidding on new work.
Retention receivable ageing — retentions outstanding beyond the defects liability period may indicate disputed work or client financial difficulty that will result in write-offs.
Cash flow timing — construction cash flows are inherently lumpy. Assess whether the entity has adequate working capital facilities to bridge the gap between expenditure on new projects and receipt of progress payments.