8.5.1.6 General Contractor with Adequate Capital

A. The General Contractor’s adjusted working capital position should equal 5% or more of the estimated construction contracts in place.

1. The instructions for hypothecation (See Section 8.5.1.3.D) of fixed assets may be applied if the General Contractor does not have an acceptable working capital position.

2. The General Contractor’s ability to obtain a performance-payment bond does not negate or lessen this requirement.

3. Adjust the working capital amount for projects in construction.

4. If the General Contractor does not have an acceptable working capital position or sufficient fixed assets that can be hypothecated, a joint venture may be established with a financially stronger General Contractor provided these firms’ combined working capital equals at least 5% of all construction contract amounts for projects in construction and development.

5. Waiver of the working capital requirement is reserved to Regional Center Directors and will be considered only when there are specific strongly supported mitigating factors.

6. Pay When Paid subcontracts affect the timing of the payments to the subcontractor, not the requirement to pay, and therefore should have no effect on the working capital calculation. Pay if Paid contracts will relieve the General Contractor’s obligation to pay the subcontractor; however these type contracts, while not prohibited, are generally discouraged for both policy and risk reasons. Therefore, HUD will generally not permit an adjustment to the General Contractor’s working capital requirements if either contract is used.