The following Banking & Finance practice note provides comprehensive and up to date legal information covering:
Most projects are underpinned by a complex web of contractual relationships between all the parties involved in the project (eg the project company, equity investors, contractors, sub-contractors, off-takers and suppliers). These documents are generally referred to as the 'project documents'.
In many projects, the construction contract is one of the principal project documents.
In a typical project finance transaction, the project company is a special purpose vehicle (SPV) set up specifically for the purposes of the project (see Practice Note: Project finance—key project parties).
Projects involving the construction of a new asset (ie 'greenfield' projects) will invariably necessitate significant construction work. If the project company is an SPV, it is unlikely to have the expertise to design and/or construct the project itself so it will enter into a construction contract with an appropriately-skilled contractor (the Construction Contractor) to provide those services.
The purpose of a construction contract is to:
allocate construction risk to the party best placed to bear it, ie the Construction Contractor (for more information about construction risk, see Project risks and risk allocation—Construction risk in a project finance transaction)
agree a timetable for construction of the project, and
manage construction costs
The form of construction contract that the parties involved in the construction of a new asset may choose to use will depend on a number
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