Banks and Non-bank Lenders Advisors

Banks and non-bank lenders hire quantity surveyors to conduct due diligence and monitor ongoing construction projects they are financing to ensure that funds are appropriately allocated and spent. Usually, an initial QS report is provided at the beginning of the construction phase and ongoing progress claim reports are provided regularly.

When a QS is tasked with preparing an initial QS report for a construction project, they are provided with a comprehensive suite of documents and instructions to ensure thorough analysis and accurate forecasting. This preparation is critical for assessing the project’s financial viability, legal compliance, risk management, and overall feasibility. When the QS is instructed to proceed with the progress claim reports, the focus is to provide regular updates on the construction site and how the project is tracking based on the construction timeline.

Instructions Provided to the Quantity Surveyor for the Initial Report

Described below are actions that banks and non-bank lenders may request from quantity surveyors for the initial QS report:

• Review the Building Contract: Examine the executed building contract to understand the scope, obligations, and expectations set forth for all parties involved.
• Provide a Cost Estimate: Based on the endorsed plans, offer a detailed cost estimate that aligns with the project’s scope and specifications.
• Conduct Due Diligence: Investigate the builder and developer’s background, focusing on their experience and reputation in the industry, to gauge their capability to deliver the project successfully.
• Review Contractual Documents: Analyse the building contract (draft or fully executed) to identify any exclusions, unfair conditions, or discrepancies in the cost estimate and recommend necessary amendments.
• Assess Presale Contracts: Examine any presale agreements for conditions that might affect the building contract or overall project delivery.
• Review Insurance Policies: Ensure that all insurance policies (Contract Works, Building Warranty, Public Liability) meet the lender’s requirements and offer adequate coverage.
• Maintain a Stakeholder Register: Keep an up-to-date list of all key stakeholders, including key subcontractors, involved in the project.
• Advise on Construction Timeline: Offer insights on the expected timeframe for project completion, considering the available documentation and project scope.
• Recommend Additional Safeguards: Suggest any covenants or conditions that the lender should consider incorporating into the contractual agreements to mitigate specific risks associated with the construction site.

Documentation Provided to the Quantity Surveyor

The list below outlines examples of documentation required by a quantity surveyor when producing the initial report. While not every item is required, it is generally best practice that the quantity surveyor collects as much information as possible.

Permits and Plans:

• Demolition Permit: Required if existing structures need to be demolished before new construction can begin. It ensures that the demolition is carried out safely and in compliance with regulations.
• Planning Permit: Necessary for the development or use of land in a way that requires permission under local planning regulations. It focuses on the impact of the development on the local environment, community and surrounding infrastructure.
• Endorsed Planning Permit Plans: These are the detailed plans that have been officially approved along with the planning permit, outlining the approved development or use.
• Building Permit: Issued to ensure that proposed building work meets building codes and standards for health, safety, and structural integrity.
• Endorsed Building Permit Plans: The detailed construction plans that have received official approval as part of the building permit process.

Drawings and Specifications:

• Architectural Drawings: Visual representations of the building design, including floor plans, elevations, and details of the construction.
• Structural Drawings: Detailed drawings that specify the structural elements of the building, such as beams, columns, and foundations, ensure the building’s strength and stability.
• Electrical, Hydraulic, Stormwater, and Mechanical Services Drawings: Plans that outline the design and layout of the building’s electrical systems, plumbing, storm water management, and HVAC systems.
• Energy Certification: Documents that certify the building’s energy efficiency levels, often required by regulations to ensure sustainability standards are met.
• Architectural and Finishes Specifications: Detailed descriptions of the materials, finishes, and techniques to be used in the construction, providing a guide for builders and ensuring quality control.

Reports and Insurance:

• Geotechnical Report: A study of the soil and ground conditions of a site, which informs the design of the foundation and structural elements.
• Contract Works Insurance: Provides cover for damage or destruction to construction works, materials, and equipment during the construction period.
• Building Warranty Insurance: Offers protection against defects in workmanship or materials once the construction is completed.
• Public Liability Insurance: Protects against claims for bodily injury or property damage that third parties may suffer due to construction activities.

Contracts and Agreements:

• List of Key Stakeholders and Subcontractors: A comprehensive list of all parties involved in the project, including subcontractors and key stakeholders.
• Agreement on Construction Commencement Date: A formal agreement between the borrower and builder specifying when the construction work is scheduled to begin.
• Copy of Builder’s Registration: Documentation that verifies the builder is officially registered and qualified to undertake construction work.
• Tripartite Agreement: A legal agreement between three parties, often involving the owner, the builder, and the lender, outlining the rights and responsibilities of each party regarding the construction and financing.
• Valuation Report: An assessment of the property’s market value provided by an independent valuer, often required by lenders before financing a project, to ensure the loan amount is appropriate relative to the property’s value.

This detailed approach ensures that the QS has a holistic view of the project, encompassing technical, financial, legal, and risk-related aspects. By leveraging this information, the QS can formulate a report that accurately reflects the project’s cost implications, timelines, and potential challenges, offering invaluable insights for decision-makers to navigate the complexities of construction project management effectively.

Progress Inspections and Reporting

The role of a QS in ongoing construction site monitoring is pivotal for ensuring that the project remains on schedule, within budget and conforms to the specified standards and regulations. Their expertise provides a critical link between the construction activities on the ground and the financial and contractual commitments made to lenders and stakeholders. These inspections are comprehensive, focusing on several key areas to provide a detailed progress report to the lender. The following list features examples of the expected duties of a quantity surveyor during the ongoing monitoring phase:

• Status of the Construction Program: The QS evaluates whether the project is progressing according to the planned schedule. This involves assessing the completion of milestones against the construction timeline.
• Variances / Changes to Endorsed Plans: Any deviations from the originally endorsed plans are noted. This could include alterations to the design or specifications that were not part of the initial agreement.
• Certificates Issued: The QS provides copies of relevant certificates issued during the inspection period. These could include compliance certificates, safety inspections, or other regulatory documents.
• Monitoring Expiry Dates: It’s crucial to ensure that the contractor’s license, insurance, permits and the building contract are all current. The QS checks these documents for any upcoming expiry dates that could affect the project’s legality or insurance coverage.
• Budget Variances: Any discrepancies between the budgeted and actual costs are reported. This could involve both overruns and savings compared to the planned budget.
• Additional Information Impacting Construction: This could include unforeseen challenges such as supply chain issues, changes in regulatory requirements, or other external factors that could affect the construction process.
• Risk Factors on Site: The QS identifies any issues likely to delay the project’s completion or the issuance of a Certificate of Occupancy. Common risk factors might include inadequate staffing on site, substandard workmanship, or overstated progress claims by the contractor.

Banks and non-bank lenders typically request the QS to provide their recommendations and advise on how much the builder and sub-contractors should be paid for the work completed on site. By summarising the key issues that need to be resolved and the amount recommended for payment, the QS ensures that the bank and non-bank lenders can mitigate construction risks.

Key Factors for Lender’s Review

Lenders will utilize the quantity surveyor’s ongoing monitoring and initial report and will pay particular attention to the following aspects of their reporting and inputs as it impacts the viability of the project and associated risks:

• Adoption of the Contract Sum: The lender will want to know if the QS has accepted the contract sum as the construction budget.
• Experience with the Builder: The quantity surveyor’s prior experience with the builder and its impact on the project’s risk assessment.
• Compliance and Licensing: Verification that the builder possesses the required licenses and that all necessary permits and approvals have been obtained.
• Contractual Adequacy: The suitability of the building contract for the project, including provisions for liquidated damages, deposits, retention sums, contingency (typically 5% of the contract sum but can be more depending on the nature of the project), and the adequacy of insurance coverage.
• Timeframe and Delays: The quantity surveyor’s opinion on the achievability of the construction timeframe, potential delays, and whether the loan terms accommodate such eventualities.
• Technical Report Concerns: Insights into any issues raised by environmental, geotechnical or other technical reports that could impact the project.
• Contractual and Consultant Team Suitability: Evaluation of the project consultant team and the contract superintendent’s potential biases.
• Boundary and Land Surveys: Confirmation that the construction works are designed within the property boundaries.

Through diligent monitoring and detailed reporting, the QS plays a critical role in safeguarding the interests of the lender, ensuring that the construction project meets all agreed-upon standards, stays within budget, and adheres to the timeline. This ongoing oversight is crucial for identifying potential issues early and implementing corrective measures to keep the project on track.

Conclusion

The indispensable role of quantity surveyor in construction projects is highlighted by their comprehensive involvement from the initial planning stages through to project completion. This article highlights the critical importance of a QS in ensuring financial viability, project efficiency, and smooth operational management. Their expert contributions not only facilitate the successful execution of construction projects but also safeguard the interests of all stakeholders involved, demonstrating the quintessential nature of their role in navigating the complexities of construction project management.