The Contractor Question

In this week's blog, we take a closer look at one of the single most operationally significant third parties in any residential development loan: your client gets the headlines, the site gets the scrutiny, but what about any contractors involved? Often treated as a footnote in the early analysis of deals, and that's a classic mistake made by all parties and one that experienced development lenders like us will attempt to avoid by making it central to our opening discussion around viability. To flesh out our point, here is a rundown of the key things a credit team will examine that rarely make it into a broker's submission pack, and the kind of things that trained lending-side originators are always on the lookout for. All of these points are drawn from many years of discussion and the thousands of early propositions we have reviewed.

Starting at Companies House, a contractor's name on a JCT contract means nothing if you haven't pulled their filing history. Credit teams will look beyond the current year's accounts to examine trends such as declining net assets, increasing creditor days, director changes, dormant subsidiaries, or a company that has quietly changed its business nature. A company registered two years ago with a paid-up share capital of £1 is not the same proposition as a 15-year-old contractor with audited accounts and consistent retained earnings. At the early stages of a development deal, there is no requirement to be forensically looking at a contractor's accounts, but it’s a great idea to have an understanding of what an ideal background and picture looks like, and then you can sense-check how close what you have in front of you is to that, and make a judgement call. Brokers will often submit a build cost; credit teams then assess it. The question they are asking themselves isn't just whether the figure looks reasonable per square metre; it's whether the contractor who quoted it has actually built comparable schemes at that price point. A contractor who predominantly works on commercial fitouts, quoting for a 12-unit residential scheme with underground parking, should prompt questions rather than assumptions. Lenders will often benchmark tender figures against known cost data and comparable schemes they've funded, so early sense checking these points is always a good idea.

There's a material difference between a developer with a decade-long relationship with their main contractor and someone who found a builder on a recommendation last month. Credit teams assess whether this is an established working relationship, whether previous schemes completed together were on time and on budget, and whether the contractor genuinely understands the developer's build programme. Familiarity reduces the risk of mid-build disputes, variations, and the dreaded contractor exit, which can be the death knell for a project unless properly managed. A contractor who is simultaneously running four other live sites is a different risk profile to one whose capacity is genuinely available. Credit teams will ask, "What is this contractor's current workload?" Are there other schemes in their pipeline that we know about? Overstretched contractors are a leading cause of programme delays, and programme delays in development finance are expensive for everyone.

Brokers tend to note that a JCT contract is in place. Credit teams want to know which version, whether it's truly fixed-price or full of fluctuation clauses, what the variation mechanism looks like, and how robust the retention structure is. A JCT Design and Build contract with uncapped employer's risk provisions is not the same level of protection as a clean, fixed-price JCT Minor Works agreement. The details matter, and the devil reliably lives in the schedules. In the event of contractor insolvency or default, the lender needs to be able to step in and appoint a replacement without the build grinding to a halt. This requires a properly executed collateral warranty and clear step-in rights. Credit teams will want to see these executed, not merely promised. Brokers sometimes submit heads of terms or draft warranties; that's not the same thing. An unsigned warranty isn't a warranty. A second point of verification may be the insurance schedules included in submissions. What often isn't checked is whether the policy is current, whether it covers the specific scope of works, whether there are material exclusions, and whether the sum insured is appropriate for the scheme's GDV. Credit teams will review the actual policy documents, not just a certificate of currency, and this may require that the lender be listed as an interested party. A lapsed or inadequate policy is a risk that surfaces precisely when you need it not to.

Not all contractors are interchangeable. A contractor with a strong track record in new-build residential on greenfield sites may not be the right choice for a complex conversion of a Grade II-listed building with shared-ownership tenure. Credit teams assess whether the contractor's CV actually aligns with the scheme in question: timber frame versus traditional build, below-ground complexity, planning conditions requiring specialist materials, and phased handovers. Mismatches between contractor experience and scheme specifics are a warning sign and not one that always makes it into a broker's submission. Some main contractors are genuinely full-service operations with direct labour across key trades. Others are essentially management contractors who will subcontract virtually everything and whose actual control over programme, quality, and cost is more limited than their headline contract position suggests. Credit teams want to understand the subcontracting model: who bears the risk of subcontractor insolvency? What procurement has already been done? Are key subcontractors already contracted or are they still to be appointed? Unknowns here translate directly into cost and time risk on the loan.

What happens if they don’t finish the work? This is perhaps the most honest question a credit team will ask and the one least comfortable to raise in a broker submission. If this contractor exits the site halfway through the build, what does completion actually cost? Is there a realistic pool of replacement contractors in this region at this build specification? Has a QS stress-tested the completion cost scenario? Lenders who properly fund development consider the exit before they fund the entrance. The contractor is central to that exit, and the strength of their position, their financials, and their contractual commitment is what stands between an orderly completion and a distressed asset.

None of this is a criticism of brokers; we work with some incredible partners, and the best ones already cover much of this ground and bring lenders genuinely well-prepared submissions. But the credit function exists precisely because risk needs to be independently examined, not just presented. A development lender's job is to protect the capital deployed, and at Invest&Fund, that capital belongs to individual investors seeking real returns from real assets. A strong contractor doesn't just execute the build. They de-risk the loan. And identifying the difference between a contractor who looks good on paper and one who genuinely performs under pressure is exactly the kind of judgement that sits at the heart of credible development lending.

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