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M25 DBFO deal delayed by bank crisis

Construction firms are struggling to put together financial packages for privately funded infrastructure (PFI) projects, it emerged this week.

Increasing caution in the banking sector following the crisis, which gripped world markets earlier this month, is raising the cost of financing these projects.

As a result procurement of major projects like the £4.5bn M25 widening is thought to be falling behind schedule.

A Highways Agency spokesman said preferred consortium Connect Plus – which comprises Balfour Beatty, Skanska, Atkins and Egis Projects – will not have completed its funding package until early 2009. Initial forecasts predicted funding would be tied up before the end of this year.

Work on the scheme is due to begin in April 2009, but the contract will not be signed until funding has been secured.

However, the agency said it was confident that the project would remain on schedule: "We are all well aware of the current market conditions. However, the preferred bidder (Connect Plus) is continuing with the funding competition and lenders continue to be keen to provide support.

"We are on target to bring this to a satisfactory conclusion. Following the successful completion of the funding competition, the Highways Agency expects to award the M25 DBFO contract in early 2009. We still expect to start the widening works in spring 2009."

The problem is also hitting other sectors. Grant Thornton director Nigel Mattravers, who specialises in waste PFI projects, said banks are spreading risk as thinly as possible, making the task of raising large sums more difficult.

"There's no lack of interest from banks in the waste PFI sector, but there are obviously difficulties at the moment," said Mattravers, who is also chairman of the ICE waste board.

"It's the same pot of [PFI] money that banks have to go to whether it's schools hospitals, waste or roads.

"We are noticing a lot more banks clubbing together – whereas previously they would have funded a project alone. They are now getting together as the money they have to back schemes individually is far less than before the financial crisis.

"The lending terms they are offering have also obviously become far less attractive," he said.

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