Financial impact analysis of Statutory Trusts in the building and construction industry
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This proposal will eliminate from the construction contracting industry, all but the largest, highest capitalised companies who are capable of obtaining unsecured capital and/or borrowing from shareholders or financiers. The reason is that it prioritises payments received to third parties (subcontractors) and provides only a contractual right to recovery of upstream payment from clients.
In my opinion, such a massive drag on head contractor viability must be accompanied by a commensurate form of security for the head contractor such as for instance, a statutory, implied "charging clause" added to each head contract so that the head contractor has some greater security to recover its contract price from the principal.
If this is not provided, competition from smaller contractors will be eliminated and the bottom line is that construction costs will rise sharply.
Another consequence will be the virtual elimination of lump sum contracts and a preference for construction management models that remove the head contractor (construction manager) from the contract chain with the principal.
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