Construction projects carry risks for everyone involved, from the owner to the general contractor to the lender. Good construction funds control is one of the ways that lenders mitigate financial risk during the construction process, and ensure a successful and on-budget project.
What Is Construction Funds Control?
Construction funds control is the process by which a lender or their agent (usually a third party firm like GLE) manages when and how funds are disbursed to contractors, subcontractors, and equipment and materials suppliers on a construction project.
Third party construction funds control begins with an agreement between the lender and a construction loan monitoring (CLM) firm. Once the agreement is in place, the CLM firm should conduct a thorough Plan and Cost Review (PCR) before construction begins, including a line item review of the costs, and the draw schedule, to ensure that they are appropriate.
Once construction begins, the CLM will receive and review the contractor’s, subcontractor’s, and material suppliers’ draw requests (invoices), inspect construction progress to ensure all work is completed and materials delivered before draws are approved, obtain lien waivers from subcontractors to protect the property from construction liens, and issue funds to each of the parties.
This work must be done in a fast and efficient manner in order to avoid delaying construction, and it also must be done knowledgeably and accurately. For this reason, it’s important to pay close attention to who you hire to do this work.
How to Choose a Construction Funds Control Firm
Because funds control plays such a major role in risk mitigation, it’s important to choose a firm you can trust to do the work in an efficient and effective manner. Here are the major criteria to look for.
-
- Extensive track record of successful projects. This is the number one criteria to look for. Be wary of hiring an organization that calls itself a CLM or construction funds control firm but can’t back themselves up with an extensive portfolio of similar projects.
- Geographic footprint compatible with the locations of your projects. They should be able to get inspectors on site quickly to perform the draw inspections.
- Current in-depth industry knowledge. They should have a real-time knowledge of appropriate material and labor costs, in order to effectively evaluate the appropriateness of draw requests.
- Financially sound. You are giving the company access to a substantial amount of money each month in order for them to promptly pay everyone. You want to make sure that the firm is financially sound, has a good reputation, and has the appropriate insurance coverage.
At GLE, we’ve been partnering with lenders to provide construction funds control services for almost 30 years. Our clients include community banks to large national financial institutions, and both new construction and complex renovations. Projects include office, industrial, education, retail, single and multi-family residential, religious, manufacturing, healthcare, and laboratory construction.
On every project, we assign a senior point of contact to manage the process. Our teams are actively involved in the construction industry, meaning they always have up to date knowledge of current market rates for labor and materials.
Our broad footprint means we can get inspectors on site quickly. We use cloud-based inspection technology to prepare preliminary inspection reports rapidly, which reduces the amount of time between when inspections occur and when you can issue draws.
We’re proud of both our track record and our use of current technologies to make our construction loan monitoring and construction funds control services the best in the business. We’d love to talk to you about your next project.
