Contractors urged to take funding risk to get market moving

22 March 2010

Law firm Eversheds has called on well-financed contractors to complete projects before getting paid, Construction News reported.

By waiting for payment until a project is completely built contractors can help the property market get moving, Eversheds said.

Eversheds senior legal manager Michael Conroy-Harris said: “In the face of being unable to secure capital for new projects from banks, clients and developers commissioning projects are having to use innovative means of financing them.

“One solution is to agree terms with building contractors so that they are not paid until the project is completely built, rather than paying them in stages as has been the case.”

However, Conroy-Harris added: “This is not a panacea as the building contractors will need a clear exit route from financing the development, but clients and developers may consider refinancing at that stage an attractive prospect.”

His comments came after reports at MIPIM that banks are holding back property development in central London by not providing capital for new projects.

The Association for Consultancy and Engineering is also asking the Chancellor of the Exchequer, Alistair Darling, to consider innovative funding methods for infrastructure in his Budget next week. 

Construction News reported that the options, set out by the ACE in its paper, ‘Infrastructure Funding’, include the use of Tax Increment Financing and the re-introduction of regional stock exchanges.

Under TIF, banks or other investors lend funds on the understanding that the higher tax returns resulting from the completed project will be used to service the loan.

The paper also argued that the government should examine the case for infrastructure or green energy bonds, and suggested that the Chancellor should consider incentivising asset management firms with tax breaks if they invest in infrastructure.

ACE chief executive Nelson Ogunshakin said that while the chancellor’s priority must be to address the budget deficit, continuing investment remains vital to economic growth and the move to a low carbon economy.

“While traditional government borrowing can sometimes be the best option, there are other ways to ensure funding goes to infrastructure.  We have made our suggestions in this paper to stimulate debate and explore innovative methods of funding,” he said.

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