When I first entered the field of commercial real estate consulting in the late 1990’s, construction consulting was still an informal exercise with many financial institutions relying on an inspection company or architect to visit the site and “check the draw.” This process typically involved taking a handful of photographs, reviewing the contractor’s draw, and making sure the project wasn’t in danger of any significant delays or cost overruns. Over the years, this process has become more formalized to meet the risk management standards of financial institutions who provide millions in loans for shopping centers, office buildings and other commercial developments. While construction loan consulting hasn’t yet evolved into standardized guidance through ASTM or another unifying body, the requirements imposed by lenders have led to more oversight and standardization within this subset of transactional real estate, with one specific service in particular seeing more and more utility. That service being Funds Control.
Funds Control Delivers Value
Funds Control provides lenders with a government-approved disbursement platform for construction projects not supported by a Payment and Performance Bond. In addition, Funds Control allows for immediate recognition of construction cost concerns that may occur during a project, providing the opportunity to implement solutions in real time rather than dealing with a surety company when the project becomes indigent. Funds Control is typically a lower cost alternative to bonds, offering yet another advantage to its usage as a risk management tool. With that said, the most important advantage to Funds Control is ensuring that the loan proceeds are utilized for the project being financed and not provided directly to the General Contractor for use on another project or other less discretionary means. With Funds Control, individual payments are made to the general contractor, subcontractors and suppliers based on their actual invoices supported by the level of work completed, providing a high level of accounting transparency and title fidelity throughout the project.
We differentiate funds control operations by combining both the site draw inspection and document review under one individual, thereby reducing processing costs and cycle time. This model also eliminates the potential for confusion between multiple parties involved in the disbursement, reducing the chance for errors and keeping all communications and records with the construction professional assigned to the project. The following outline provides the basic components of our Funds Control Process:
- Funds Control Project is awarded by the Lender and a funds control agreement is established between AKT Peerless, the Lender, Borrower and the General Contractor.
- We complete a Construction Analysis Report and Contractor Review if requested by the Lender.
- A pre-construction conference call between AKT Peerless, the Lender, Owner and General Contractor is performed to ensure all parties understand the requirements, documentation and timelines associated with the Funds Control process.
- The initial draw request, supported by invoices and conditional lien waivers, is submitted to AKT Peerless by the General Contractor. After we review these documents for compliance, a field inspection is scheduled within 3 business days.
- After the field inspection and draw documentation review is completed, we provide a report to the Lender with a funding recommendation. The Lender then disburses the approved amount to a separate Funds Control bank account managed by AKT Peerless accounting personnel.
- We prepare individual checks and unconditional lien waivers to subcontractors and material suppliers approved for payment, as well as the amount earned by the General Contractor, and sends all checks to the General Contractor for distribution.
- We obtain unconditional lien releases for payment verification prior to the next draw, and the process is repeated through closeout.
Our process is thorough and efficient, ultimately ensuring our professional oversight from project start to finish.
How Can We Help?
Funds Control is an extension of our Construction Loan Monitoring services. Our capable team of Architects, Engineers and Environmental Professionals are committed to thorough and professional consulting with a focus on our customer’s success. We also offer a broad range of engineering services that assist developers and lenders through the due diligence process, including environmental and energy products. Through our recent acquisition of Construction Loan Consultants, an Atlanta-based firm serving lending institutions since 1974, we’ve added a suite of construction services to complement our existing portfolio of environmental due diligence products. With the addition of this suite of construction monitoring services, AKT Peerless now provides Construction Analysis Reports and Contractor Reviews as a part of the construction loan underwriting requirements, as well as site inspections, draw reviews and Funds Control for construction loan administration. We want to be your trusted resource for Funds Control services and more, and we stand ready to demonstrate our capabilities and earn your business. For questions about any of this or to discuss a specific need, please call me directly at (404) 256-1779.
About the Author
Jody Whitt is Vice President of Construction Services for AKT Peerless and also serves as the company’s regional manager for the southeast US region. He has over twenty years of professional experience in the fields of construction, engineering and technical management, with specific expertise in the area of construction loan reviews, property condition assessments, and environmental consulting. Mr. Whitt received a Bachelor of Sciences degree in Chemical Engineering from Clemson University in 1992.
About AKT Peerless
We are environmental consultants, building scientists and redevelopment experts who are proud to help build sustainable communities. We provide environmental, energy and sustainability, economic development, and construction loan services that are tailored to the needs of each of our clients, private and public sectors alike. And we empower our people to engage, at work and in our communities, to make a difference. Call us at 800-985-7633 to arrange a free consultation or visit us at www.aktpeerless.com or on Facebook.