Project Hedging: What It Is and How to Get It Right

For most businesses, FX risk is a rolling cash flow problem. Revenue and costs in foreign currencies arrive on a predictable drumbeat, and the hedging programme is built to match that rhythm: a percentage of exposure covered on a rolling basis, reviewed and adjusted every month.

Project hedging is different. It applies when the exposure is not recurring but discrete: a single contract, a single asset purchase, a single piece of work with a defined start, a defined currency exposure and a defined, if sometimes uncertain, end. Think construction and infrastructure contracts, EPC projects, cross-border M&A, large capital equipment purchases or long-lead-time supply agreements. The FX risk is not a percentage of annual turnover. It is tied to one number: the value of that project, in that currency, over that timeline.

Get it wrong and FX can turn a profitable contract into a loss-making one before a single unit of work has been delivered. Get it right and the FX position becomes a known, managed cost rather than a variable that keeps finance directors up at night.

Cash position matters just as much as the hedge itself. Where a hedge can trigger a margin call, company cash may be pulled in as an emergency deposit, and that alone can slow delivery of the project. Cash is king in a broader sense too: a company may win a project on expertise or value, but still needs the working capital to deliver it on time. Jackson Swiss Partners can help on both fronts, protecting against margin calls and sourcing the funding needed to deliver, as set out below.

Why project hedging is different

Rolling hedging programmes are built around continuity. They assume exposure will keep arriving, so today’s forecast error gets corrected next month. Project hedging does not get that luxury: there is no next month to fix a mis-hedged bid, because the project is often a one-off event with a fixed contract price agreed months or years before delivery. That changes the risk profile in three important ways.

Exposure can exist before the contract is even won

Many project-based businesses have to submit a firm, foreign-currency-denominated price at bid stage, often months ahead of knowing whether they have won the work. That creates a genuine hedging dilemma: hedge too early and you carry risk on a contract you might not win; hedge too late and you have priced the bid on a rate that may have moved against you by the time you are awarded the contract.

Timing is rarely a single date

Rolling hedging deals with reasonably predictable cash flow dates. Projects rarely pay out that way. Drawdowns, milestone payments, retentions and final completion payments are spread unevenly across the life of the contract, and the timeline itself is subject to slippage. A hedge built around an assumed delivery schedule can be badly out of shape if the project runs six months late, which is why a project needs an FX and lending partner who understands the project in detail, with the flexibility to roll and extend both hedges and repayment terms as the timeline shifts.

The exposure is usually large relative to the business

A single infrastructure contract or acquisition can represent a meaningful proportion of annual turnover or balance sheet size. That concentration means the consequences of an unhedged or badly hedged position are proportionally much larger than they would be for a slice of routine trading flow.

The key factors to get right

Exposure identification and currency mapping

Map the actual net FX exposure, currency by currency and cash flow by cash flow. In multi-currency contracts, the net position after natural offsets is rarely the headline contract value.

Tenor and cash flow matching

Match the tenor of each hedge to the actual expected payment dates, not just the contract end date. A strip of forwards against each milestone is usually better than one hedge sized to the full contract at the final date.

Instrument choice

Forward contracts remain the standard tool for known, contracted cash flows because they lock in a rate with no premium cost. Where timing is genuinely uncertain, window forwards, which allow settlement across a range of dates rather than a single fixed date, are often a better fit than a rigid dated forward. Options and collars suit contingent exposure, such as at bid stage, since they provide protection without locking in a rate on a deal that may never happen.

A straight forward also has a cost that is easy to overlook: it removes upside as well as downside. Structured instruments can be built to protect the downside on a project, exactly as a forward would, while still leaving room to participate in favourable market movement. That is a decision worth making deliberately rather than defaulting to a plain forward out of habit.

Project delays and hedge extension

Delays are close to a certainty on any contract of size. Agree in advance how hedges get extended or rolled when milestones slip, and understand the rollover cost, which moves with interest rate differentials over the life of a delayed project.

Counterparty and settlement risk

Long dated hedges on large notional amounts concentrate credit risk with whichever bank or broker is on the other side of the trade. For sizeable projects, that risk is worth spreading across more than one counterparty, and worth checking against counterparty credit limits and collateral or margin requirements.

This is one of the areas where standard hedging practice quietly puts projects at risk. A forward that moves against the company can trigger a cash collateral call from the bank, sometimes at exactly the point in a project when cash is already stretched, regardless of how the project itself is performing. Sourcing hedging facilities structured to be margin-call-free removes this risk entirely, so the company’s cash position, and the project’s P&L, stay protected whatever the market does, without the added stress of unpredictable collateral demands.

Ongoing monitoring

Revisit the hedge as the project progresses. Scope changes, subcontractor currencies, delays and change orders can all shift the exposure away from what was originally hedged. This is where having the right platform behind the hedge matters.

Our AI treasury management portal, HedgePoint, gives clients a live, single view of every hedge against the underlying project, so exposure, cover ratio and mark-to-market position can be checked at any point rather than pieced together after the fact. It tracks each hedge against its original rate and rationale, flags when the underlying exposure has drifted from what was hedged (through a delay, a change order or a shift in payment currency), and stress-tests the position against a range of market scenarios so the impact of a rate move is known before it happens, not after.

For audit and governance purposes, HedgePoint also produces a clear reporting trail: who approved a hedge, on what evidence, and how it has performed against the market and against the project’s own budgeted rate. That is exactly the kind of record boards, auditors and lenders increasingly expect to see. And because performance is reported in P&L terms against the project itself, rather than as an abstract FX gain or loss, it is straightforward to see whether the hedge has done its job of protecting the margin the project was priced on.

Funding the project alongside hedging the risk

Hedging protects P&L once a project is funded, but funding is a separate question. Many projects need working capital or facility funding to get moving, and terms vary widely by lender and sector. AI-driven lender and borrower matching widens the search beyond the first or most familiar lender, so cash flow is never the constraint that holds a project back.

Pricing

The underlying cost of hedging instruments and credit facilities is often hidden, and can eat considerably into a project’s P&L. Negotiating the best cost of transacting, alongside the most flexible terms, is as important as sourcing the facility itself.

Why this matters

Project-based businesses, particularly in construction, infrastructure and cross-border M&A, increasingly compete for work priced in currencies they do not naturally hold, against competitors who may have a different risk appetite or hedging capability. A disciplined, well-structured approach to project hedging is not just a treasury exercise. It is a genuine point of competitive advantage: it protects margin, supports more confident bidding, and removes FX as a source of surprise on projects that already carry enough execution risk of their own.

At Jackson Swiss Partners we build exposure maps, structure hedge programmes across the life of a project, and benchmark execution across our broker panel. We source the largest and most flexible margin-call-free hedging facilities available, structure instruments that protect against downside while allowing upside participation, and use AI-driven lender matching across our panel of more than 300 lenders to source the most attractive commercial finance for the underlying project, negotiating cost and terms so margin is protected rather than eroded. HedgePoint’s forecasting and stress-testing tools track exposure as it evolves, so the hedge always reflects the project as it stands, not as it was scoped on day one, and its reporting gives a clear, auditable record of how each hedge is performing against the project throughout its life.

Case study: hedging a €300m MOD contract for a UK defence supplier

The situation

A UK defence sector supplier won a Ministry of Defence contract worth €300m at a 40% margin, a transformational deal for a business with turnover under £70m and cash reserves under £3m. Defence is already treated as high risk by most banks, and here the contract itself dwarfed the client’s balance sheet. Every bank and broker approached declined to hedge the €300m GBP/EUR exposure, basing their decision purely on balance sheet size relative to contract value, without looking at the underlying commercial picture.

What we did

We assessed the full commercial reality. The end client was the Ministry of Defence, a counterparty that would honour its obligations in any circumstance. We had our lawyers review the confidential contract to confirm it was watertight, then made the case to our FX credit partners that the client was worthy of the full credit line, regardless of what the balance sheet alone suggested. That argument held. The client was able to lock in their 40% margin, removing FX volatility from the deal entirely.

A second problem followed. The client’s own supplier required funds upfront, and the client lacked the working capital to cover it. We sourced a £10m borrowing facility at competitive market rates to bridge the gap and keep the project on schedule.

The outcome

Without this support, the project may not have proceeded, or its margin and timeline would have been left exposed. With it, the client delivered on time, kept their supplier and the MOD satisfied, and locked in the profit the deal was built on.

Where lenders do extend credit against higher risk profiles, they typically price it accordingly, often eating into the margin the deal was meant to deliver. Solving for FX credit and commercial lending together, on a project the market had otherwise written off, is not a common capability. It is exactly the kind of situation Jackson Swiss Partners exists to solve.