PAY! Quick Primer -
PROJECT FINANCING
It is critical that subcontractors understand the role of project
financing in construction. For example, with solid understanding of
project financing, a customer might avoid working on a public project for
which full funding was not secured. Most standard industry documents
including documents from AIA (American Institute of Architects), AGC
(Associated General Contractors of America), DBIA (Design Build Institute
of America), CMAA (Construction Management Association of America) contain
provisions relating to project financing.
PROJECT FINANCING
- Knowledge of project financing arrangements is important for
subcontractors, not just the general contractors.
- When credit risk is shifted to subcontractors, subcontractors should
always ask questions.
- In situations of project insolvency, no matter what type of contract
a subcontractor signs the subcontractor is at risk.
- Slow owner approval of change orders can be rooted in project
financing problems.
- Subcontractors might lose any realistic opportunity for payment for
the material and labor invested in a project.
WHAT ARE THE SOLUTIONS?
- EDUCATION! The more you understand the safer your business is.
- Subcontractors must understand the nature of the credit risks they
take, and why they should feel ENTITLED to project financing
information.
- Subcontractors should know that many standard industry documents
include requirement to disclose project financing arrangements.
- By using ASA's Generic Subcontract Addendum, the subcontractor will
be sure to have a right to project financing disclosure.
- The Generic Subcontract Addendum is available in the Members-Only
section of the ASA Web site.
- The AIA suggests that subcontractors obtain a loan commitment letter
to prove adequate project financing.
- Depending on your level of risk in a project, however, you may want
more. The actual loan agreement, for example, could inform you
of lender conditions that must be met before approval of a draw.
Credit rating services like Dun & Bradstreet, or credit reports
may also give valuable warning signs.
- Another valuable service for researching project financing practices
is the ASAC Business Practices Interchange in the members only section
of this Web site and the ASA National Business Practices Interchange
found in the Members-only section on the ASA Web site, www.asaonline.com.
CONCLUSION
- Subcontractors will see real change when they start asking for
project financing information.
- This movement to change the way project financing information in
handled begins with you asking the appropriate questions an demanding
the appropriate terms.
(c) 2003 American Subcontractors Association, Inc.
ASA chapters have permission to reproduce this article in all media.
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