Construction Risk Management
Front End Analysis
Our goal is to set up every construction project for success before it ever begins. Prior to loan closing, we review all construction documents for accuracy and completion to advise the client of any concerns that may impact the successful completion of the project. The Front End Analysis contains the following specific components:
- Provide a description of the major elements of work in a narrative format. This description contains comments on the design attributes related to site development, foundation design, superstructure assembly, interior and exterior finishes, and mechanical and electrical systems.
- Describe the project’s location, surrounding properties, access to the project, and protected areas such as easements, right-of-ways, flood plains, wetlands, setbacks or other restricted areas that may impact the project.
- Comment on the sufficiency of the drawings and specifications for the intended improvements and the adherence to building codes.
- Review the construction agreement between the Owner and Contractor. Specific comments will address the type and sufficiency of contract utilized, payment provisions, final payment requirements, project exhibits, change orders and schedule.
- Review the Architect’s Contract including the extent of services.
- Comment on the sufficiency and detailing of the hard cost construction budget and whether or not there are any front-end loading concerns. Our budget review includes a line-by-line comparison with the proposed project cost that easily identifies any inconsistences.
- Comment on the sufficiency of the construction schedule as it pertains to the proposed scope of work and note the commencement and completion dates.
- Comment on the current zoning and its conformance with the proposed construction.
- Review of the project’s zoning, utility availability and permit status.
- Review the geotechnical investigation and comment on the soil types, borings performed and if any difficult site developments due to near-surface rock, groundwater or non-structural soils are present. In addition, recommendations from the geotechnical investigations are cross-referenced for inclusion in the design drawings.
- Review of any the environmental reports performed for the subject property and describe the type of report completed, any environmental hazards, environmental report recommendations and projected remediation costs.
- Review the contractor’s qualification package and comment on the contractor’s licensing, experience and insurance coverage and their overall suitability to complete the project at hand.
The purpose of Construction Monitoring is to assess the progress of construction as it relates to the contractor’s application for payment and progress schedule. Construction Monitoring also serves to record other observations and recommendations as follows:
- State whether the work has progressed to the completion level indicated on the application for payment (AIA G702 and G703) and estimate the total percent of work completed.
- State the amount requested and amount approved for disbursement, as well as any amounts recommended for holdback.
- State whether the retainage is being withheld in accordance with the construction agreement.
- Note any materials being requested for payment, whether payment is approved or withheld for these materials, and if the materials are being adequately stored and protected.
- Review any subcontractor draws, invoices, proposals or other documents submitted along with the application for payment and advise the client of any discrepancies or concerns.
- Review and comment on any change orders submitted.
- Comment on the project’s adherence to the progress schedule, any major delays impacting the schedule and whether the project’s completion date is achievable.
- Provide a narrative description of the status of construction progress completed to date and the upcoming progress anticipated.
- Comment on the security, housekeeping and safety measures observed during the inspection.
- Comment on the trades observed working during the inspection, the coordination of the trades for the project and the manpower observed onsite.
- Comment on any quality concerns observed, the work’s conformance to the project drawings and specifications and any concerns with municipal approvals and oversight.
- Provide color photographs illustrating the completed work.
During construction, the monitoring and proper distribution of funds is critical to ensure that the contractor’s progress payments are properly allocated and paid for the lender to be able to ensure the work is completed and lien free at the conclusion of the work. Controlled disbursements, or Funds Control, contains all elements of standard construction monitoring but includes the following additional components:
- Collection of documentation supporting the AIA draw request, including subcontractor draws, invoices and material lists.
- Collection of conditional and unconditional lien waivers.
- Preparation of single-payee checks to the general contractor, subcontractors and suppliers through a segregated Funds Control account.
Funds Control is an alternative to a Payment and Performance Bond, and is an accepted funding mechanism in government guaranteed lending.