parallel loan agreement

a contract between the project company and a subcontractor, separate to (or parallel to) the subcontract to which it relates, in which the parties agree that if the subcontractor is entitled to payment from the project company, but the project company has not received the equivalent amount from the awarding authority, then the subcontractor automatically loans the same amount of money back to the project company. The project company pays no interest on the loan. The loan is repayable at the end of the project (or on another longstop date) or when the awarding authority pays the project company. Used as means of getting around the prohibition on "pay when paid" provisions under the Construction Act 1996, many advisors on PPP projects now doubt its enforceability in a construction sub-contract. One common mechanism to seek to avoid the "pay when paid" provisions of the Construction Act 1996 is to enter into the parallel loan agreement with the subcontractor's parent company, so that (at least in theory) the project company pays the subcontractor but the funds to make that payment come out of the interest-free loan provided to it by the subcontractor's own parent company.