Worried that negligence and fraudulent draw requests will eat through that construction loan?
Draw request monitoring is the answer you’re looking for.
It isn’t uncommon for a construction project to experience several setbacks before the building is completed. Such issues are common, but that doesn’t make them acceptable.
New construction is a huge investment, but that investment only pays off if the project is completed on-time and within budget. As a lender, you understand the finances, but successful commercial construction requires specialized knowledge of construction and engineering as well.
With BIS, you can keep an eye on draw requests with draw request monitoring that lends an expert’s eye over your building project. Sometimes referred to as construction loan monitoring, draw request monitoring plays an essential role in preventing overfunding, underfunding, mistakes, and sometimes even fraud from causing a project to go over budget.
Here’s how BIS can help.
What Is Draw Request Monitoring?
When your lending institution or private equity firm provides financial backing for a construction project, you want to know that you’re not investing in a money pit.
A draw request review can help prevent that.
When the builders submit a draw request, BIS (or your construction consulting firm of choice) will go over every page and line item to verify that everything is legitimate. This should involve a visit to the job site to verify that all materials are there and that the work has actually been performed as promised.
If this information matches the paperwork in the draw request, you can release funds for the next building phase.
For an extra level of protection, draw request monitoring may also include a quality control inspection for the work completed.
At BIS, we caution all lenders against working with companies that monitor draw requests only from their desks. Construction projects don’t exist solely on paper, and neither should your draw request monitoring. It simply makes it too easy for a builder to miss mistakes or pull the wool over your eyes.
As a lender, your primary focus is on the numbers. That’s why it’s so important to you that any construction project with your financial backing keeps to a strict budget.
It’s very common for the real numbers to differ from the theoretical estimates on the draw schedule, but how do you make sure those differences are minimized?
When a builder consistently asks for more money than was budgeted for, that could indicate that costly mistakes were missed or that s/he is even trying to put extra funds into their pockets. This not only effects the project’s timetable, it throws off the whole budget.
But asking for too little money should be just as concerning. Without sufficient funding to properly complete the next phase, you run the risk of sub-par materials or workmanship that will only compound issues later.
In our 40+ years of experience, we’ve never inspected a building that didn’t have several mistakes, issues, or code violations. On rare occasions, these issues were relatively simple to fix. Most of the time, however, they may require extensive repairs now that would have been much easier—and cheaper—to fix had they been discovered earlier.
While there’s never a convenient time to discover that, for instance, your foundation was poured incorrectly, it would be much worse to discover it after the building has already been completed. At that point, a $1-million problem becomes a $200-million nightmare.
With a good draw request review performed by an expert commercial building inspector, you’ll have an experienced and knowledgeable eye on those draw requests to catch mistakes before they happen or while they are still relatively easy to resolve.
There are a number of documents that make up a draw request, and each of them is an opportunity for fraud.
A builder can claim to use more (or more expensive) materials than they actually used. They can overestimate the amount of labor hours needed to complete a phase of construction (pocketing the difference). They can skimp on paying subcontractors, leaving outstanding liens on the property. They can submit a change order for work that is completely unnecessary.
As a lender, you might never spot these shady activities (in fact, they’re counting on it), but construction loan monitoring by an honest engineer or commercial building inspector would spot them a mile away.
Construction projects are both expensive and complicated, which is already a terrifying combination to entrust with your money. Add in negligence, incompetence, inattention, and outright fraud and you have the makings of a total nightmare.
As a lender, if you’re only looking at a project’s finances, you’re only looking at half the picture. With draw request monitoring, you can keep your eyes and ears on the entire process—from labor and materials to budgetary constraints.
Inadequate funding, project delays, costly mistakes, and fraud can make a mess out of any construction project. But draw request monitoring (combined with a pre-closing construction review and progressive on-site inspections) holds builders accountable and protects your investment.
At BIS, we’ve been inspecting commercial buildings throughout the country since 1975 and we are a licensed engineering firm as well. Our expertise in the industry is unparalleled and we look forward to sharing it with you.
Call today to request an inspection so we can help you complete your next project.