BUILDER INSOLVENCY PROTECTION

For Lenders

Most lenders have stepped up financial due diligence in response to widespread builder cashflow pressures and heightened insolvency risk. Unfortunately, it’s no guarantee they (or their investors) will be spared – it’s near on impossible to verify a builders’ true financial position through upfront due diligence alone.

And even if you are satisfied with your builders’ current financial position, no DD check can predict the financial impact of new contracts they may sign throughout your build; due diligence stops just as delivery risk begins.

IPEX Helps Lenders Find The ‘Honest’ Builders

IPEX is an online payment platform that places practical limits on how a builder can use project funds. Builders can access payment for their preliminaries, margin & direct costs, but the balance of each progress payment is set aside and off limits – these funds can only be used to pay subcontractors and suppliers linked to the project.

Rather than relying solely on a ‘stat dec’, IPEX allows the lender to verify that those linked to previous claims have been paid before releasing further payment.

Importantly, IPEX also helps to validate builder financial due diligence outcomes: if your builder truly has the financial capacity to complete existing contractual commitments, they should not need to divert funds from your project!

There is NO cost to lenders; IPEX is paid for by the developer.

‘Test’ builder due diligence outcomes to find ‘honest’ builders.

Stop payments from being used to cashflow other projects.

Validate ‘stat decs’ to confirm subcontractor payments.

Act on ‘step in’ rights before your builder goes under.

Protect funds already paid to builder in the event of insolvency.

KYC/AML checks of all subcontractors & suppliers.

No change to builder process & no impact to builder payment.

Reduce Risk & Admin on Developer-Builder Lending

Whilst lenders already demand additional oversight under the developer-builder model, these checks are largely manual and rely on information that is sourced from the borrower – not ideal when one of the primary risks to the lender is the potential for the developer-builder’ to divert funds to other projects.

IPEX transparency and places practical limits on how the borrower can use project funds largely solves the financial oversight problem for lenders.

In addition, as IPEX removes the need for manual oversight checks by the lender, it also removes the admin associated with ‘proving’ compliance from the borrower – the lender can already see that the right people have been paid.

IPEX Provides Developers & Lenders with Ongoing Protection

‘TEST’ BUILDER FINANCIAL DUE DILIGENCE RESULTS TO FIND THE ‘HONEST’ BUILDERS

Due diligence in its current form requires the developer/lender to satisfy themselves of a builders’ ability to meet existing contractual obligations. If the information they are basing this decision on is out of date, incomplete or fraudulent, they bear the consequences.

IPEX shifts the onus for any due diligence ‘gaps’ onto the builder; those willing to accept the condition of ‘ring-fenced’ funds are essentially ‘proving’ their financial status; those that have misrepresented their true position will fight IPEX inclusion & likely withdraw.

PREVENT PAYMENTS BEING USED TO CASHFLOW OTHER PROJECTS & ACT ON ‘STEP IN’ RIGHTS EARLY

IPEX adds practical controls that prevent a builder from using progress payments to cash flow another project, even if they’re in extreme financial distress. Builders can access payment for their preliminaries, margin & any direct costs, but funds equal to the value of works performed by subcontractors are set aside & off limits.

IPEX also allows developers to confirm every subcontractor & supplier payment. If your builder submits a ‘stat dec’ claiming to have paid someone they haven’t, you can identify it immediately & take action before approving the next claim. In the case of more serious/repeated breaches, you’ll have the information you need to act before your builder enters administration.

PROTECT FUNDS ALREADY PAID TO THE BUILDER IN AN INSOLVENCY EVENT

Should a ‘payment default’ event occur before completion of an IPEX protected project, the impact to developers & lenders is minimised as:

Any payment made to the builder via IPEX has either been distributed to approved parties or remains in the account
The developer can replace the builder as trustee of the project funds, gaining full visibility of all previous transactions & the ability to make payments directly to subcontractors/ suppliers, minimising delays to practical completion.

$1B+ in funds protected and counting

IPEX Project Applications

PREVENTION FROM DAY 1:
PROTECT AGAINST FUTURE BUILDERS’ CASHFLOW ISSUES

Guard against the potential impact of other, less-feasible developments linked to your builder
Additional protection when working with a builder for the first time or builder is ‘stepping up’ a level
Provide lender comfort should builder due diligence has raised minor red flags
Provide lender comfort on developer-builder projects

MID-PROJECT IMPLEMENTATION:
GUIDE ‘TROUBLED’ PROJECTS TO COMPLETION SAFELY

‘Controlled’ payments to assist your builder with funding supplier deposits
‘Ring-fence’ additional payments outside of the
contract to ensure they’re spent on your project
Move forward with the builder despite substantiated instances of non/delayed payment of subcontractors or suppliers

Lenders Protections under IPEX

All progress payments are ring-fenced to the project.
All subcontractors and suppliers are subject to full KYC/AML checks and have account details independently verified before they are eligible for payment. BSB and Account Numbers are then cross-referenced with the payment file the builder submits – payment is blocked if details don’t match.
The lender and developer can view (and if need be, approve of) any subcontractors and suppliers that are linked to the project account before they are eligible for payment.
The lender and developer can confirm which subcontractors and suppliers have been paid, when and how much* before approving additional claims, reducing risk of misappropriation and making ‘cost to complete’ reports far more reliable.
Certain ‘key trades’ may be set to ‘open book’ to satisfy lender oversight requirements whilst other contract/payment values can remain confidential (payments made under standard view are expressed as a percentage of contract value which is sufficient to ensure amounts paid are in line with work performed onsite).
If required, the lender or developer may require the builder to distribute funds to subcontractors and suppliers before approving any payment due to the builder.

* Standard developer portal view shows payment as % of contract value. Open book developer portal view shows subcontract/payment values.

What Our Customers Have to Say

"At Frasers, we take our commitment to every project, and every investor, builder, subcontractor, supplier, and customer we work with seriously. That means putting in place financial frameworks and processes to ensure that every dollar is used for its intended purpose, and there is full accountability and transparency over the budget for a project.” “We’re so excited about the Encompass development, which has a real ‘wow’ factor, and through IPEX we’re better positioned to deliver the project securely and successfully.”

Sarah BloomGeneral Manager Development Victoria

"From the moment I understood what IPEX provided I had no hesitation in introducing it to BlueScope. With such a major capital works project it was clearly a very prudent risk management tool. With hundreds of millions of dollars being paid to suppliers and subcontractors through major contractors, securing certainty that monies were being delivered into the accounts of the substantial number of subcontractors and suppliers was critical.“

Steve ChandlerCEO

"After a year of utilising the IPEX platform on one of our key commercial construction projects, the experience has been overwhelmingly positive. The platform’s user interface and our customer service experience have exceeded our expectations, significantly bolstering the security and efficiency of our collaboration with the builder. The adoption of IPEX has been embraced by the builder and & it provides additional comfort to trades particularly with the current construction industry challenges."

John VickersDirector

“Based on our experience IPEX should be mandatory. It is now an integrated and essential part of our governance. It’s delivering a new standard of providing trust downstream to our subcontractors and suppliers that they’ll be paid and upstream to our clients and the financial institutions funding these projects.”

Ken O’ConnorDirector

“IPEX delivers the security of funds subcontractors need on projects. Everyone prices risk into jobs; however, with the IPEX concept, there is a reduction of payment risk, which should translate into a more competitively priced trade insurance outcome. It’s really in everyone’s best interests in the long run to use IPEX.”

Sam LeslieGeneral Manager

“Once we were aware of IPEX and decided to implement this new standard for project payments, it was a seamless onboarding and end-user experience. It reduces risk and addresses trust and relationship building in one platform. This will put us in a powerful position as the demand for construction labour increases.”

Rob MoolmanManaging Director