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Funding fear ends Mace’s Shard deal

Laing O’Rourke is being lined up to take over from Mace to build the 310 m-high Shard of Glass building in London.

Mace had been doing the work on the Shard on a construction management deal but the Teighmore development team, led by Sellar Property, is set to ditch the CM route in favour of a fixed-price contract.

The decision was made after months of funding problems with banks unwilling to bankroll the deal under CM.

Banks are understood to have told Teighmore that they will only get involved in the scheme if the work is let under a fixed-price contract.

The move has raised fears that banks could make similar demands on other high-profile projects yet to sign off their financing.

One expert said: “At the moment, banks want certainty about what they’re getting involved in. Fixed-price means they cap their exposure to the contract.

“Some big jobs got their financing away before the credit crunch happened but if funding wasn’t signed and sealed then they’ve got problems. Banks are cutting their lending books and I wouldn’t be surprised if this is the start of a wider trend.”

The Shard, which will eventually go up close to London Bridge train station, carries a construction price tag of Ł350 million and O’Rourke is expected to take over from Mace some time before Christmas.
It is believed Teighmore only began initial discussions with Laing O’Rourke recently, after approaching chairman Ray O’Rourke about the possibility of carrying out the deal.

Irvine Sellar, chairman of Sellar Property Group, has had to endure a series of frustrations in recent months after co-investor Simon Halabi decided to sell his stake in the job after racking up a series of losses on a failed leisure business.

Mace, which along with Laing O’Rourke is part of the CLM project management team on the 2012 Olympic Games, began work on the job last year.

But it is now bracing itself for a vastly reduced role. One insider admitted: “I think our role will be limited. It’s disappointing to say the least because it’s a great, high-profile scheme.”

Mace had been due to pick the winner of the key steel contract this month.

A colourful past

The Shard’s progress from the drawing board to reality has seen it linked with some of the industry’s leading names.

In 2001 Bovis Lend Lease was lined up as project manager, only for Multiplex to take over as pre-construction advisor in 2003. In November that year the tower was given planning approval, with Shangri La signed up on a pre-let for the hotel element in February 2005.

Mace stepped in last year after Multiplex walked away citing a change in its strategy towards risk.
Keltbray has carried out enabling works ahead of an eight-month demolition. Construction is due to take 40 months to September 2011.

Analysis: Is fixed price now the way ahead?

By Alasdair Reisner

In recent months, the Shard has sat in a shadow cast by the difficulties in the global finance markets.
The decision by Simon Halabi to sell his stake in the project came at precisely the wrong time as markets wobbled and the Shard struggled for backers.

By fixing the price, the developer team is hoping to get the banks to back it.

Fixed-price evokes memories of Wembley Stadium, the deal that saw Multiplex take a £200 million battering.

No contractor wants that type of hit but fixed-price seems to be the only way a job like the Shard will be built.

What is certain is that it is not the only project to find itself in this position.

Developers are fond of making gung-ho noises about how confident they are that their projects are going ahead. But to get off the ground, many could now consider following the Shard’s example.