Grant Warner – CEO, Australian Institute of Quantity Surveyors (AIQS)
There are a number of hindrances to accessing structured finance if you’re a player in the offsite / prefabricated space. Firstly, given offsite manufacturing in Australia is still very immature, there are few well established players in the market. The other complexity is that offsite manufacturing (whilst gaining momentum), is not in the staple diet of all architects, developers and building contractors, so demand varies and is not constant.
For financial institutions, it is the risk appetite associated with prefabrication that can often determine the extent to which products/materials constructed offsite can be utilised in commercial construction projects. Consequently, smaller players are generally undercapitalised and require cashflow funding to a degree by one or more of below means:
- Cash Reserves.
- Overdraft from a bank.
- Cashflow finance through a third party mezzanine funder.
- Invoice financing – Paid 80% of invoice, balance when financier paid in full.
Agreed progress claims linking to Bank Guarantees (with fair release clauses in contract) are often the best option to give piece of mind for both parties. These will need to cover;
1. Design Costs – Agreed Monthly Costs.
2. Materials Offsite – often long lead time material procurement presents problems once goods have arrived after the Bank Guarantee has been released.
In effect, the client now has considerable ownership of materials in the manufacturer’s possession. Sometimes the manufacturer will not be in a position to fund imported material purchases. In Queensland, there is legislation to enable owners of goods (if registered) to access product in the event the manufacturer files for administration.
“For financial institutions, it is the risk appetite associated with prefabrication that can often determine the extent to which products/materials constructed offsite can be utilised in commercial construction projects.”
Often the willingness of banks to provide finance for projects also comes down to the builder and its payment terms. In the case of some construction projects, progress payments are only due when the building has arrived onsite. ■