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Cash upfront for cladding The Cube

The team behind a £75 million mixed-use scheme in Birmingham has been forced to stump up £1 million in advance to its cladding contractor to make sure the work gets done.

The construction arm of the Birmingham Development Company exchanged contracts with German firm Haga last week. The Stuttgart contractor will get the £1 million now and the remaining £10 million once the scheme is complete.

BuildAbility director Neil Edginton said: “So many cladding contractors are going bust, the likes of Schmidlin, big firms, and I can understand why.

“They do all the work and then don’t get paid until sometimes up to two years
after the work. I don’t know how these firms do it. Haga is basically the best in the business and their attention to detail fitted the bill. They also showed they could deliver.”

The payment was made as part of an on-demand bond agreement with Haga’s bank to guarantee the money will be returned if there are any contractual problems.

The scheme, known as The Cube, is the final part of the Mailbox project which has turned a former sorting office into a commercial and residential development.

Specialist Engineering Contractors’ Group chief executive Rudi Klein said he expected more payments like this to be made in the future as in-demand trades cranked up the pressure on main contractors.

He added: “Realistically there aren’t many cladding contractors around, so it’s fair to say they may have more bargaining power.

“Advanced payment is rare in the UK but is common abroad, so we can learn from this. It shows something that the industry is sorely in need of. It’s a means of security and insolvency protection.”

To avoid any delays to construction, the gold anodized aluminium cladding will be shipped over next spring around three months before cladding work proper starts. Cladding work on the 23-storey building is due to finish in winter 2009.

BuildAbility has also paid German car parking specialist Wohr part of its contract upfront to make sure a £2.5 million automated car parking stacking system - the largest planned in the UK - is completed.

The tower cranes on site will be painted black - a colour rarely used on British sites - to keep with the theme of The Cube’s brand colour.

Analysis: It is no bad thing to build a trusting relationship

Paul Thompson

The fact that clients and developers are being forced to pay a ‘golden hello’ to cladding contractors underlines just how difficult it can be to pin down suppliers.
Even property development shows on television warn of the dangers of paying cash up front. Traditionally it has been seen as a sure sign that cash flows at the firm are not what they should be and clients should walk away while the klaxon bells are still ringing.

But the increasingly competitive worldwide cladding market, coupled with the dearth of UK-based cladding manufacturers and installers, has forced a volte face.

Advanced payment is no bad thing. As Rudi Klein says, it is a common occurrence on the Continent. It allows specialists to get some money rolling through and underlines a client’s commitment to the supplier.

Any payment up front indicates an immediate level of respect and trust between the two parties. And in the litigious world of construction that may not be a bad thing either.