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As I outlined in a previous article focused on the role a receiver plays in a partially completed or broken condo project, the first order of business is to secure the site. Once secure, the note to complete holder can then decide whether or not construction. Assuming the decision is made to complete the project, the receiver must focus on three issues: first, the cost to complete, then funding that cost and finally disbursement control. This is where great care should be taken to protect the estate and, of course, the receiver. As a condition precedent to deciding whether to fund the cost to complete, the receiver should retain the services of a construction consultant to provide an accurate estimate of what that expense would be, including both hard and soft costs. Once the cost has been estimated, it’s important to have the party funding the completion agree with the estimate. The receiver then needs to retain an architect to draft the plans and specifications in as much detail as possible.

Once drafted, they can be submitted to the contractor so that actual costs can be established. A mistake often made by receivers is to allow the contractor to use allowances for a particular construction line item when the plans and specifications lack the detail to actually cost the item. All too often, the allowance is insufficient to cover the actual cost, in which case the budget will be exceeded. A receiver should never proceed with construction until complete plans are in hand and the contractor has agreed to either a guaranteed-maximum-price or a fixed price construction contract, which is necessary in order to eliminate the risk of cost overruns.

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