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Poor project structuring leads to disputes, says legal expert

by Fatima De La Cerna on Aug 7, 2017

Paula Boast, partner at Charles Russell Speechlys.
Paula Boast, partner at Charles Russell Speechlys.

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Poor project structuring has led to financing-related disputes in the Middle East, said Paula Boast, partner at the London-headquartered law firm, Charles Russell Speechlys.

Boast, who is head of construction, engineering, and projects in the Middle East, told Construction Week that poor structuring is the most common issue her firm encounters when dealing with disputes.

She explained: “Projects that were, for example, stalled or on hold suddenly coming back on line with funding secured quickly or unexpectedly, with little thought to project incomes/projections or trajectory further down the line.

“[It’s a practice] more geared towards getting [funding] than re-procuring or re-master planning projects for current market requirements.”

Boast pointed out that banks, financiers, and lenders have grown more cautious as a result of the global recession, resulting in “increased requirements for diligence, heightened credit data and checking procedures, more negotiation, and a focus on cautious structuring around projects”.

She added: “Most of that stems from a ‘lessons learned’ approach, which cannot be faulted. But it is essentially now the new normal when it comes to project finance.”

Boast noted that projects need to comply with the increasingly stringent requirements being set by financial institutions; otherwise, they will have difficulty getting funding “on preferred terms”.

“Many projects are now compelled, as part of their overall procurement plans, to reach out to a significantly higher number of potential financiers than they did previously,” she said.  

To boost their chances of securing financing, Boast said that companies need to ensure that they have sufficient information with them when approaching banks and other financial establishments.

She elaborated: “Financiers expect to see project and risk planning and analysis, [as well as] feasibility studies.

“They want corporate ownership and credit information. They want the backdrop to stalled or postponed projects. They want documentation that satisfies their own internal and legal requirements for due diligence, anti-money laundering, and regulatory compliance purposes. All as an absolute minimum. They want to know exactly who/what they are doing business with.”