Real estate development finance—introductory guide to forms of procurement

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Real estate development finance—introductory guide to forms of procurement
  • Design and build procurement
  • Traditional procurement
  • Management contracting
  • Comparing forms of procurement

Real estate development finance—introductory guide to forms of procurement

The development documentation is a key part of any real estate finance transaction which involves the development of property. For more information, see Practice Note: Real estate development finance—introduction to the development documentation. The nature and content of the development documentation will be determined by the form of procurement which is chosen for the development. Procurement, in this context means, buying services for development works.

This Practice Note explains the key features of the most common methods of procurement for developing a property:

  1. design and build procurement

  2. traditional procurement, and

  3. management contracting

The design and build approach is typically the preferred procurement method for lenders because it provides the best option for cost certainty. It is the most frequently used method of procurement in the UK. The management contracting method is the most risky in terms of cost and is generally disliked by lenders (and is less commonly used than the other methods of procurement in the UK construction market).

Design and build procurement

The design and build method of procurement involves the borrower (known as the employer or developer) appointing a building contractor to undertake both the design and build elements of the development.

Under design and build procurement, the typical first step is for the borrower to appoint its architect and other professional consultants. The borrower and its team

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