VARIOUS PARTICIPANTS AND DIMENSIONS OF BUILDING INDUSTRY

There are numerous participants that take part in the construction process. The key participants
are listed below :

Contractors

General/Prime Contractors

Construction Managers

Commercial Contractors

Commercial Project Owners

Residential Construction Developers

Subcontractors

Highway Contractors

Heavy Construction Contractors

General Architects
 Landscape Architects

Engineers

Material Suppliers

Construction Lenders

Surety Companies

Each of the above participants can and often do have multiple roles in the construction process.
For example,

The owner could also be the general contractor (builder/developer).

The general contractor in addition to providing supervision may also do specialty work that
would typically be subcontracted (for example, concrete work).
Construction lenders frequently hold an equity position in a development partnership in
order to participate in the management decisions and to share in the profits.
Anchor tenants, such as major department store chains participate in the development
partnership in exchange for signing long-term leases.
Contractors and material suppliers can obtain rights in the project by filing mechanics liens
against the property
 FINANCE
Construction finance is one of the major concerns of any firm hoping to succeed in the
industry.
The problem is not just of the quantity but also the quality. Things are made more complex
by the laws of the land, the state of the economy, but most importantly by the imperative of
minimizing cost.

There all types of construction enterprises- from sole proprietorships to large multi-nationals.
Funds are available from various sources and quite naturally large corporations mange to
raise the most and of the best quality as well.
Construction Loans are of two types:

1.Short Term

2.Long Term
Very often firms have requirements of short term funding to overcome immediate cash
shortfalls.
These pertain to the hiring of plant, purchase of material, and labor wages to be paid to
workers. This is where short term finance is necessary
Long term finance comes into play when capital is required for a period ranging between 5 to
10 years.
This may pertain to starting a business or carrying out expansion. In the main the capital is
deployed in setting up plant, buildings and equipment. Because of the long term implications
the lender has to exercise due caution as the risk is greater
There are various sources of finance available to the construction industry. These are as follows:
1.Shares-
Shares are held by individuals or entities as the legal right of their ownership of the firm to the
extent of the value of the shares. This is the best type of funding, as both the profits and losses
are shared in proportionate measure by all the shareholders, and there is no pressure of
repayment as in the case of loans. A new or a fresh issue of sales infuses fresh capital into the
firm.

2. Debentures-
These are loans taken by the firm from different individuals or entities. These vary from
conventional loans as the rate of interest is fixed and the repayment date too is decided in
advance.

3. Bank Loans-
They are rather difficult to obtain, particularly by construction firms. They will invariably ask the
borrowing firm to meet part of the requirement from their own resources, and the rates of
interest too are high.

4. Internal Accruals-
Sometimes profits are ploughed back into the business to fund expansion and other activities.

5. Bank Overdrafts-
This is a facility provided by commercial banks to firms of good standing to overdraw on their
account to a certain extent upon the payment of a rate of interest. As soon the money is
returned, the interest stops being levied and the account operates normally like before.
6. Creditors-
Funds flow can be substantially augmented if the firm can get easy repayment terms from their
creditors, and if at the same time their debtors pay up on time. The construction industry is
particularly suited to this time of arrangement, since receipts from clients are linked to stages in
completion of work. Most construction firms have started using Cash Flow Forecasting software
to get a fix on their exact funding requirements.

7. Short Term Loans-

These can be obtained from individuals, banks, and other financial institutions. Since they are
needed as working capital, they carry a fixed rate of interest on the total sum and cannot be
recalled prior to the due date.

8. Corporate Tax Provision-

Tax is usually paid one year down the line. This frees up the money for that period of time.

9. Depreciation-
This is a bookkeeping exercise by which the initial value of an asset is written off over its life
cycle. This too can be regarded as a source of capital. That is because if no depreciation were to
be written off greater profits would be available to the shareholders. This is a reserve created by
depreciating fixed assets, and is similar in nature to retaining earnings. Of course this will require
the preparation of two sets of accounts. One for taxation purposes, and the other for internal
consumption.
 These days more and more construction firms are resorting to investment appraisal
techniques to gauge their requirement of finance.

This assumes great significance in light of the fact that they are able to bid more effectively
for projects, buy using this kind of calibrated costing.

Typically in such an analysis only the incremental expenditure and receipts directly
emanating from this project being eyed should be considered.

We can see that construction finance is perhaps one of the most important factors, if not the
number one factor in deciding the viability of a project.

The present times are particularly challenging because of the paucity of funding available,
and also the far greater scrutiny funding of any type is subject to these days.

It is therefore contingent upon the firm seeking finance to do its homework right, and
present a watertight case for itself, in order to be able to secure the requisite amount of
funding.
 FINANCIAL RELATED PROBLEMS
Late payment
Client's poor financial and business management
Withhold of payment by client
Contractor's invalid claim
Delay in valuation and certification of interim payment by consultant
Inaccuracy of valuation for work done
Insufficient documentation and information for valuation
Involvement of too many parties in the process of honoring certificates
Heavy work load of consultant to do evaluation for variation order
Poor cash flow management
Contractor handles too many projects at the same time
Contractor's unstable financial background
Unqualified contractor underbidding the project cost
Lack of regularly cash flow forecasting
Poor credit arrangement with creditors and debtors
Capital lock-up
Insufficient financial resources
Difficulties in getting loan from financiers
Allocation of government budget not in place
Financial market instability
Increment of interest rate in repayment of loan
Inflation (material prices, labor wages, transportation costs)
Increment of foreign exchange rate (imported materials and plants)