Building inspection company assists lenders

Oct 9, 2018 // By:Scott Hamele // No Comment

Monitoring for construction bank draws

By Scott Hamele, DBIA President and founder of Nationwide Commercial Inspections, LLC (NCI) and Construction DesignWorks, LLC

A great deal of commercial lenders find themselves in a bit of a dilemma when approving invoices from construction companies. A building inspection company can assist commercial lenders in monitoring construction bank draws by using a property inspection checklist.

A draw, according to bankrate.com, is a payment taken from construction loan proceeds made to material suppliers, contractors and subcontractors. This means the borrower doesn’t have to pay them from personal funds while the project is ongoing. Draws also keep vendors happy because they’re getting regularly paid.

Commercial lenders may be experts in the world of finance and lending but often lack the knowledge to understand the percentage of completion of a construction project. Most often the project architect is engaged in providing the service of inspecting the project, assessing how much has been completed and comparing it to the draw amount, also known as a pay application (pay app). The most commonly used and accepted pay app is the American Institute of Architects (AIA) Document G702™–1992.

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Helpful forms for the contractor and business inspection company

AIA Document G702™–1992, Application and Certificate for Payment, and G703™–1992, Continuation Sheet, provide convenient and complete forms on which the contractor can apply for payment and the architect can certify that payment is due. The forms require the contractor to show the status of the contract sum to date, including the total dollar amount of the work completed and stored to date, the amount of retainage (if any), the total of previous payments, a summary of change orders, and the amount of current payment requested.

AIA Document G703-1992 breaks the contract sum into portions of the work in accordance with a schedule of values prepared by the contractor as required by the general conditions.

NOTE: The AIA does not publish a standard schedule of values form. AIA Document G702–1992 serves as both the contractor’s application and the architect’s certification. Its use can expedite payment and reduce the possibility of error. If the application is properly completed and acceptable to the architect, the architect’s signature certifies to the owner that a payment in the amount indicated is due to the contractor. The form also allows the architect to certify an amount different than the one applied for, with an explanation provided by the architect. [definition by The American Institute of Architects]

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The project architect is often not hired for construction administration duties and as such may not be required to provide review of construction draws. In this instance, a building inspection company is a highly qualified alternative to the architect. In many cases the commercial building inspector may even have more knowledge and construction experience than an architect and be a more suitable choice to review AIA pay apps for accuracy.

Commercial lenders need to safeguard that they are only disbursing funds to the construction company for what has been completed to date and protect themselves as well as the client, from overpaying for services rendered. To solve the lender’s problem of obtaining quality and conversant inspections, make sure to hire a building inspection company for property inspections.

Nationwide Commercial Inspections, LLC provides the most comprehensive commercial building inspection reports in the industry

NCI utilizes their architectural, engineering and construction expertise to create and develop a high-quality PCA. These reports are customized for each type of real estate: office, retail, flex-space, industrial, hospitality and healthcare. If you are interested in protecting your real estate investment, contact us at 913-667-7774 or visit our website at www.nwc-i.com.

Click here for a video about the property condition assessments we provide.

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