TABLE OF CONTENTS Borrowing money on the open market is expensive and so both client and contractor should attempt to keep these costs to a minimum. For example it may well be possible for a large and stable electricity supply company to arrange and pay for insurance costs associated with a particular construction contract because they are able to obtain preferential rates. If the client leaves all such costs to be borne by the contractor then they will only appear in the contractor s tender sum with a suitable mark-up. Therefore the client could well end up paying more for the project overall in the long run without this more mature approach to contract financing.
The principle to be adopted in a large construction contract between client and contractor is that the individual contract costs must be borne by the side best able to bear them if the costs are to be kept to a minimum. Such cost allocation must include risk costs; poor risk management is one of the major factors in total project cost, and a sensible contract will all ensure that risk responsibility lies where it is best managed.
Since a contractor starved of cash cannot function the following factors are important:
Sufficient advance payments to the contractor should be considered. The purpose of such payments is to cover contract front end expenditure such as mobilization, early engineering work, payments to sub-contractors, commission and insurances. Typically such advances will be of...
