The number of new construction contracts has continued to dwindle and many contracts are in limbo as the availability of funds remains an issue for developers and builders.

Construction lawyer and partner at Gillis Delaney Lawyers Marcus McCarthy said he had seen a noticeable downturn in tripartite agreements (those involving a financier, developer and builder) in the past two years, as a result of the funding situation. “I have seen several of those types of agreements fall into difficulty, with either the financier exiting due to its insolvency or the developer/builder falling into difficulties with the financing arrangement due to cost blowouts and falling valuation returns. In both scenarios, it has been extremely difficult to obtain replacement finance and projects often sit incomplete for a long period of time before further finance is obtained,” he said. 

Developers and financiers don’t see the situation improving any time soon according to a new report by construction consultants Davis Langdon. More than 50% of financiers surveyed for the report did not expect the financing situation to improve for at least another 12 months, while developers were more pessimistic, expecting it to take another 18 months.

McCarthy said that as a result of the lack of funding, many developers were engaging private equity trusts and overseas banks for finance. “Tripartite funding agreements are often prepared independently of the construction contract and without the advice of specialist construction lawyers, increasing the risk of a default by either the developer or the builder causing a cascading negative impact on the project,” said McCarthy.

Excluding government stimulus projects, work done and work commenced in Australia in the non-residential sectors is down 34% and 52% respectively on 2008 figures, based on Australian Bureau of Statistics data.