Lenders assessing a project may be satisfied with its revenue agreement and still face a serious gap if construction responsibility is divided between several contractors. Civil works, imported equipment, grid connections and software commissioning may each have different completion dates. No single contractor is necessarily liable for the full delay. Project financing must therefore translate the physical sequence of delivery into contracts that allocate interface risk and identify who will fund overruns when gaps appear.
Map every construction dependency
A conventional turnkey EPC contract places broad design and completion responsibility on one contractor, subject to negotiated exceptions. A split-contract structure may leave coordination with the project company. The financing parties should identify deliverables, technical interfaces, access to sites, testing sequence and ownership of design information. The responsibility matrix should be attached to the relevant contracts, not maintained only in an engineering presentation. If one supplier's test depends on another supplier's work, the legal consequences of that dependency must be express.
Completion standards must align
A lender's completion test may require operating performance, permits, insurance and a minimum debt-service coverage metric. An EPC contractor's contractual completion certificate may require only the tests stated in its own agreement. The project company can therefore owe debt payments even when it has achieved contractual completion for construction purposes. The financing documents and construction package need compatible milestones, long-stop dates and remedies. Unfunded performance shortfalls can be as harmful to the project as visible construction defects.
Contingency and sponsor support
Construction budgets should include contingency for interface failure, regulatory delay, foreign exchange movements and design changes. Sponsor completion support, contingent equity or cost-overrun undertakings should be based on realistic stress scenarios, not an arbitrary percentage. Lenders should identify when support becomes drawable and when it terminates. Sponsors should resist uncapped obligations that remain in force after measurable completion. A support undertaking must also be tested against corporate authority, security and any foreign investment or remittance constraints.
Assignment and direct agreement issues
Lenders commonly seek security over major project contracts and direct agreements permitting notice of default, cure and step-in. Those rights are less effective if a contractor can terminate immediately after a missed payment or if required consents are missing. The project company should ensure that assignment and lender intervention provisions align across equipment, construction and operating contracts. A cure right without access to technical documentation or subcontractors may have little practical value.
Dispute and completion management
Claims should be tracked through a central project controls record showing notices, programme effects, instructions and costs. The project company must avoid inconsistent positions under the EPC package, financing agreements and revenue contracts. A waiver granted to one contractor could prejudice recovery from another. The intercreditor and security arrangements may constrain settlement of major claims. Early identification of contractual gaps allows mitigation and renegotiation before a delayed milestone triggers acceleration or a long-stop termination.
Points to establish from the record
- Integrated responsibility and interface matrix
- construction and lender completion tests
- stress-tested cost overrun funding
- contract assignment and step-in consents
- common claims register and lender approval thresholds
Practical conclusion
Project-finance bankability depends on allocating the risks between the revenue contract and the finished asset. A project with sound projected cash flow can still be unbankable where no party is contractually responsible for making the entire system work.
Legal materials and official sources
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