Insolvent HVAC Supplier on a Laboratory Renovation
A university is renovating a research laboratory under a fixed-price contract. The specialty HVAC supplier has filed for insolvency 10 weeks before delivery. The project has five days of total float and a weather-dependent roof installation window in eight weeks. The risk register listed supplier delay as medium probability and medium impact, but no response owner was assigned. The contract includes a 10% performance bond and a termination-for-convenience clause. An alternate supplier quotes 18 weeks and 20% higher cost; the original lead time was 14 weeks. The owner refuses a change order and says the contractor must absorb the cost. The general contractor proposes installing a temporary system and accelerating other work. Commissioning requires three weeks after HVAC. The project manager must brief the owner.
1. Evaluate the risk event and procurement options. What contractual remedies and recovery actions should you pursue?
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The risk was known but unowned, which is a governance failure. Contractually, I would first verify the performance bond terms and the termination-for-convenience clause; a bond claim may recover cost but will not restore schedule. The owner’s position that the contractor must absorb all cost is not a strategy-the insolvency is a supplier failure, and the contract’s remedies and change provisions govern. Recovery options: (1) pursue the bond and terminate/replace the supplier; (2) install a temporary HVAC system to protect the roof and commissioning window while the permanent unit is sourced; (3) resequence work to use the eight-week weather window; (4) negotiate an accelerated delivery premium with the alternate supplier. The alternate’s 18-week lead time versus 14 weeks adds four weeks, and commissioning needs three weeks after HVAC, so the schedule cannot be recovered by waiting. I would recommend temporary system plus alternate supplier, with a change order for the owner’s approval. Also notify the owner in writing of the delay and cost impact.
2. Update the risk register and explain what changes to probability, impact, response, and owner.
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Update the risk register to show the supplier-delay risk as realized, not medium: probability 100%, impact high, and record the actual cost/schedule effect. Add new risks: performance-bond recovery uncertainty, temporary HVAC failure, commissioning delay, contract dispute, and owner refusal to approve change orders. Assign a single owner-procurement lead for bond and supplier replacement, project manager for schedule integration, and owner’s representative for change approval. Response strategy: mitigate schedule through temporary system and resequencing; transfer cost risk through the bond and contract remedies where valid; accept residual commissioning risk only with contingency. Add trigger dates: bond claim within five days, alternate supplier order within ten days, temporary system decision before the roof window. The reasoning is that the old register was static; the update must convert a vague medium rating into owned actions and decision deadlines. Include the risk in the weekly owner report until closed.
3. What decision do you ask the owner to make, and how do you frame the cost-schedule trade-off?
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The owner must decide among three options: (A) wait for insolvency resolution and accept delay; (B) approve temporary HVAC plus alternate supplier, with a change order and bond recovery pursued; or (C) descope or delay the laboratory opening. I would frame the trade-off with dates and costs: option B protects the weather window and commissioning but requires owner approval for the temporary system and possibly a higher-cost supplier; option A is cheapest only if the bond and supplier resolution work, but it likely misses the window. I would recommend B and ask for a decision within five days, because the roof window is eight weeks away. I would also ask the owner to authorize legal/procurement to pursue the bond and to accept that the contractor will not absorb an unlimited cost. Document the owner’s decision, the accepted risk, and the revised baseline. The judgment is to make the trade-off explicit rather than let the contractor or owner default into delay.