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The Role Of The Lender's Consultant In Construction Projects

The lender's consultant should act as the technical eyes and ears during construction and help the lender reach the right business decisions.

A large construction project is only 50% complete, but is three months behind schedule and way over budget. The lender rips into her consultant (sometimes referred to as the inspecting architect or engineer) demanding to know, "What's going on? How did this happen? Why did I bother to hire you?" These are good questions that deserve good answers.

It may be easier to define the role of the lender's consultant by what he is not rather than what he is.

The lender's consultant is not the design architect or engineer; he is not the construction manager nor the general contractor; he is not the owner nor the lender; he is not the project superintendent nor a trade foreman; he is not the building code official nor the testing lab. The consultant is not responsible for designing or building the project, nor is the consultant the decision-maker for the project.

So if the lender's consultant is not any of these things, then what is he? Ideally, the lender's consultant is a trained architect or engineer (preferably licensed) with extensive design and construction experience, who is knowledgeable enough about all aspects of the design, development, and construction processes to be able to keep the lender properly informed about the status of the project so that the lender can make intelligent funding and business decisions.

The consultant should be the lender's technical eyes and ears during the construction process. Keeping the lender properly informed means that the consultant needs to provide accurate, relevant information in a timely manner and in clear, understandable language.

Lenders need accurate, relevant information. Knowing that the shelving has been installed in 126 out of 337 apartments may be accurate, but not really relevant to the concerns of the lender. Knowing that the delivery of the kitchen cabinets was delayed due to a fire at the manufacturer's plant and the impact of that delay on the final project completion is relevant.

The importance of timeliness

Timeliness is also important. The lender would prefer to know as soon as possible if the completion date will not be met or if the budget is inadequate. The consultant should not be calling the lender two months before the final completion date and informing her that an additional three months is needed.

Delays in receiving relevant information may prevent the lender from making appropriate business decisions, or reduce the lender's options.

Understandable language is also important. For instance, compare the following statements:

  • "The general contractor's current buyouts have not yet been fully completed and those trades that have been bought out have exceeded initial expectations, but the final impact on the overall project budget cannot yet be exactly determined."
  • "Approximately 60% of the trades have been bought out. These show a total overrun of $500,000 leaving only $50,000 in remaining contingency. An additional $150,000 contingency is recommended at this time."

The consultant should not bury valuable information in a tangle of confusing prose.

Additionally, the consultant should be constantly revising and updating his opinion on the status of the project. A construction project is not a static process and as the project continues and circumstances change, the impact of these changes needs to be included in the consultant's report to the lender.

A project may have been on schedule for the first six months, but horrendous winter weather may have pushed the project back three weeks. Recent unforeseen field conditions or coordination problems may result in additional costs and delays.
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