When a lender agrees to loan funds for a construction project, they want to know the work is being completed according to the contract agreed by all parties involved, which normally include: Lender, Owner, Borrower, Architect and General Contractor. Prior to disbursing funds each month most lenders require an inspection of the work to verify the level of completion and compliance with the contract. This practice is referred to as Construction Progress Monitoring (CPM).
Monitoring practices traditionally involve the collecting of data and documents detailing the work performed in accordance with planning, scope, material, budget and schedule usually submitted under the title of a Draw Package. More specifically, a standard Draw Package would include, but may not be limited to, the following documents:
- Application for Payment
- Payment Voucher / Invoice Summary
- Conditional Waivers (For currently requested funds.)
- Unconditional Waivers (For previously requested funds.)
- Updated Schedule
- Change Orders (Required if there is a change to the Scope, Budget or Schedule as reflected in the Contract.)
- Permits and Municipality Sign Offs
These documents are compiled and included with an inspector’s site observations and compared to the funds requested with each draw application in a Construction Progress Monitoring Report. The report would also include an endorsement and/or recommendations regarding the amount being requested for that period along with all documents received or not.
Construction Progress Monitoring is time consuming and requires a high level of knowledge and skill with commercial construction. Not many lenders maintain a sufficient work force to perform inspections in house. Most rely heavily on outsourcing these inspections to third party due diligence consulting groups.
However, not all 3rd party due diligence firms are equipped to provide construction risk management services at the level many clients may require nationally. CPM requires knowledgeable professionals – including experience in construction, commercial building inspections and/or general contracting.
An experienced construction risk manager can help protect the lender and borrower from excessive costs and mistakes.