Construction Progress Monitoring can save a lender and a borrower money, especially when instituted on the front end of a construction project. It is in some cases required by the lender. When lending money to borrowers for purposes of construction, lenders don’t write the borrower a check for the entire amount up front. The money is disbursed to the borrower as the construction project progresses. It’s becoming increasingly crucial for lenders to double check on their projects before they release funds. Borrowers usually submit a monthly draw for work completed over the previous 4 weeks. Engaging the right 3rd party is usually now one of the steps lenders consider during the closing process.
I’ve found over my many years in the commercial real estate due diligence industry, when performing construction progress monitoring it is very important to be brought in at the start of construction. When asked to inspect a project for only every 3rd or 4thdraw, it can sometimes result in items that should have been looked at to be covered up with the ongoing progress. Furthermore, an error made on draw one can be very difficult to correct with no additional cost if left unchecked for 2 to 3 uninspected draws.
It’s understandable that borrowers are looking to save money whenever possible. However, skipping a draw inspection can, and has, caused additional costs that can out weight a monthly inspection fee. In almost every case, had inspections with each draw been the order of business, the causes for those additional costs would have been recognized early on. Thus, the additional costs most likely would either not have been necessary or drastically reduced.
Please feel free to read my article, Half-Built Projects Come with a Whole Bunch of Issues, for more on my personal experience relating to construction issues. For additional information relating to construction progress monitoring visit the Partner Construction website.