Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Parallel Loan Agreement definition

What does Parallel Loan Agreement mean? In PPP/PFI projects, a 'parallel loan agreement' is a side agreement under which the construction contractor, FM contractor or its parent lends funds to the project company (Project Co), with repayments calibrated to mirror amounts that would otherwise be payable under the construction or FM subcontract. It is not defined in legislation; the term is used descriptively in project documents. Key legal feature: it sits outside the Construction Contract or FM Contract and links repayment to upstream receipts, to manage cashflow and allocate payment risk. However, if the structure makes the contractor’s entitlement effectively conditional on Project...

Parallel loan agreements in PFI and PF2 projects: background, operation and drafting considerations under the HGCRA 1996, with alternatives to manage upstream payment risk

Published by a LexisNexis Construction expert

Practice notes

This Practice Note examines Parallel Loan Agreements in PFI and PF2 projects. It explores the origins of these arrangements (stemming from the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996)) together with the purpose and key elements of the parallel loan agreement itself. Note that, in the 2018 Budget (delivered on 29 October 2018), the government announced it will no longer use PFI or PF2 for new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). Existing PFI and PF2 projects will continue to operate as before.

Background to parallel loan agreements

To understand what a parallel loan agreement is, it is necessary to appreciate the legislative backdrop that produced them. The HGCRA 1996 applies to all ‘construction contracts’, as defined by the Act, and sets out a statutory framework that parties to a construction contract must follow in relation to payment and adjudication processes (see Practice Note: Introduction to the HGCRA 1996). Section 113 of the HGCRA 1996 bans ‘pay when paid’ provisions. ‘Pay when paid’ means that the right to receive payment depends upon payment being made by a third party...

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Web page updated on 21/05/2026

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