News

Project Monitoring – A Vital Service to Protect Lenders

Contributors:

Daksha Mistry
Owen Pottle
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Around three quarters of all the construction projects we are involved in experience some level of dispute between the various parties involved at one point or another.

Whereas the majority of these disputes are relatively small scale and therefore solved amicably without recourse to legal action, we have witnesses a marked increase in defaults and litigation over the past six to eight months.

The reasons for this are many, but most centre on decreasing land values and increased loan costs putting pressure on developers, as well as spiralling labour and material costs inflicting a vice-like grip on contractor margins.

Many simply cannot afford to comply with the spec they priced, and no one in the industry can have failed to see the consequences of this; a devasting spate of construction businesses, including some well-established old names, calling in the administrators.

Given the stress imposed on construction projects, therefore, it is not unusual for us to see shortcuts being taken, including switching materials to an inferior spec or making spurious claims under the contract.

In our role as fund monitoring surveyors we use our wealth of experience to help both the funder and the developer to assess the risks on their project and in particular the I current inherent risks associated with the macroeconomic factors placing pressure on the built environment.

Whilst it is easy to understand the contractors’ positions, fighting for the survival of their businesses, in the long term, the use of inferior products and unsubstantiated claims will do more damage than absorbing some short-term pain.

So, what can a lender do to mitigate these risks and ensure the development they are funding meets the three pillars of a construction project – being built to the exact the spec agreed, within programme and within budget?

It is here project monitoring services really demonstrate their value, providing vital evidence to funders that everything is going according to plan … or not as the case may be.

Eyes and Ears of the Funder

Trident Building Consultancy provides project monitoring services across a range of sectors including residential, commercial, mixed use, health sciences and energy, to name just a few. However, whatever the sector we’re operating in, our role remains the same – to be the eyes and ears of the funder on the project site and to flag up any risks with the developer, contractor, and funder as early as possible so they can be resolved.

Often, this involves being a referee between the various stakeholders and our client, to ensure the spec as set out at the start of the process is being adhered to.

This requires a trained eye, an in depth understanding of the development under construction, and regular site visits to perform the relevant checks.

Over the years, this service has ensured countless disputes have been settled at the earliest opportunity, enabling developments to run to time and budget.

Where disputes have been more protracted, the evidence collected by a project monitor is vital in any legal proceedings that could arise, protecting the interests of the lender and ensuring monies are not released until the issues are resolved.

Monitoring not Management

Although project monitoring is a well-established and important discipline, there still exists some confusion as to the difference between it and project management.

However, the differences are well pronounced.

Project management deals with the day-to-day management of the entire development. Project managers should live and breathe the scheme they’re working on, and have a handle on every aspect of the construction schedule, budgets, and everything else that is vital to delivering a large infrastructure project.

Project monitors, on the other hand, are concerned with protecting the interests of the lender. Our role is to ensure all works undertaken adhere to the plans, and if they don’t, dig into the reasons why.

Unlikely project managers, we are not on site every day, but periodically to monitor the progression of the scheme. So whereas we work closely with project managers to ensure everything is going to plan, our role is one of oversight, not to manage all aspects of the development.

Construction Appraisal Report

The first step in project monitoring is for us to get fully acquainted with the development. This involves reviewing all the documentation around the scheme and meeting the borrower onsite. This we insist on as it can provide vital insight into how we feel the project might go forward from that point.

From this, we prepared a Construction Appraisal Report for the lender. This is an in depth document that sets out all the potential risks of the project as we see them. This report ultimately plays a significant and influential role on whether or not the funding will be forthcoming.

Drawdown Schedule

Once construction gets underway, it is the project monitor’s job to keep a regular eye on the site and the main contractor’s work to ensure everything is going to plan.

This is vital to enable all parties to adhere to the drawdown schedule.

It is achieved via monthly site visits from our experts who take an in depth look at progress to ensure it is in line with the spec, before reporting back to the lender.

It is at this point that disputes can and do arise. If the dispute is relatively minor and easily solved – and often this just means getting the various stakeholders around the proverbial table – then all well and good. Disputes of this nature are unlikely to have any significant impact on the development.

But if it is not, the next drawdown is likely to be withheld, and this can herald the start of protracted negotiations and even litigation, which will delay the construction schedule and could lead to additional costs for all parties – a nightmare situation to be avoid if at all possible.

Recent Increase in Disputes

As already discussed, as a practice, we have recently seen an increase in legal action taken against contractors that cut corners in attempting to negotiate difficult economic conditions.

Yet despite a slight easing of interest rates, we expect the level of serious disputes on construction projects to continue for some time to come.

For this reason, it is vital lenders have an expert project monitoring service in place on all the developments they’re funding, to ensure their money is as protected as it can be and that they take possession of precisely the development they agreed to fund.

Lenders themselves are not experts in construction, so without this in place, they risk falling victim to the small minority of contractors that are willing to bend the rules to prop up their own margins.

To find out more about our project monitoring services, get in touch by visiting our website here.