Project related finance for construction contractors operating in the United Arab Emirates

Demand for construction Project Finance has developed in recent years as construction projects have become more elaborate requiring more expensive and specialised technologies for their execution. Contractors' involvement with banks when operating in the United Arab Emirates usually starts at the bidding stage with the issue of bid bonds. This develops into larger commitments following their request' for performance bonds and finance facilities when they are awarded the contracts. The aim of this research is to investigate lending banks' assessments of contractors operating in the UAE, and the latter's financial requirements in order to execute various construction projects. It further aims to reconcile the needs of the construction contractor to those of the lending banks and arrive at an acceptable level of risk sharing and reward. A method of research has been adopted which includes a literature review, interviews with selected bankers and contractors, the development of case studies, and a field survey by means of questionnaires sent to both borrowers and lenders. Data relating to twenty-eight construction projects that used Project Related Finance for their execution was analysed to see if there was common ground for adoption of Project Related Finance strategy. The questionnaire survey also revealed that while bankers extend both Corporate Finance to construction companies as general limits, and Project Related Finance as limits specific to the project concerned, 73 per cent of contractors that participated in the survey used the latter. The issue of risk management in contracting and the xiv acceptability of risk by contractors as compared to that by bankers are discussed in detail. The results of this research indicate that an evaluation of both the construction project and the contractor could yield a method to assess the feasibility of adopting a finance strategy on a project-by-project basis. This method is to be referred to as Project Related Finance. The research then concentrates on the needs of borrowers and the requirements of lenders when they resort to Project Related Finance in construction. The research revealed that, on the whole, bankers consider the financing of construction contractors as an important constituent of their portfolios. It has also been shown that there is a working relationship between bankers and contractors in the executing of construction projects. The relationship lasts throughout the duration of the contract and carries on until the end of the defects liability period.