Lender construction contingency requirements, and what they should test
Lender construction contingency requirements usually set a percentage. That is the one property of a contingency fund which predicts nothing at all.
Contingency and allowances
Two funds and a set of placeholders. Who controls each one, and what empties them.
What this covers
The questions in this category
- Contractor money against owner money
- How much is enough on a GMP
- Unspent contingency at closeout
- Who authorizes a draw
- Allowances landing at the top of their range
- The resolution date, and missing it
Published
13 pieces
A construction cost range forecast an investor should ask for
A construction cost range forecast an investor can rely on is built from named exposures, not from a percentage applied to a total that nobody can defend.
Presenting construction cost to a board, and making the number hold
Presenting construction cost to a board goes wrong in the same three ways. A range, a named cause and a written source fix all three before the meeting.
Pro forma contingency vs construction contingency, told apart
Pro forma contingency vs construction contingency: two funds, two owners and two sets of rules. Adding them together is how a thin position looks safe.
Tenant improvement allowance an owner carries, and where the base building stops
A tenant improvement allowance an owner grants is a number in a lease and a scope in a contract. The gap between those two documents is owner cost.
An escalation allowance, and the risk it does not actually cover
An escalation allowance is a number in the budget. Escalation risk is an open item in the contract. Owners carrying the first often still carry the second.
Unused construction contingency, and where it goes at the end
Unused construction contingency rarely comes back in full. Three mechanisms consume it in the final months, and all three are visible from month eighteen.
Allowance reconciliation, and the money that never comes back
Allowance reconciliation should return unspent money to the owner. Four mechanisms stop it, and all four are settled by contract language before signature.
Construction allowance management an owner should insist on
Construction allowance management an owner controls is three dates and one document. Without them an allowance behaves like a floor, and floors move up.
Design contingency vs construction contingency, and the handover
Design contingency covers what the drawings have not resolved yet. It should shrink as the design completes, and on most projects it quietly does not.
Contingency drawdown rules, and the four that are missing
Contingency drawdown rules decide what the money buys and who approves it. Most contracts answer one of the four questions and leave the other three open.
How much contingency on a GMP is enough, measured against demand
How much contingency on a GMP is enough is not a percentage question. Size the fund against the demand already visible on the day the price is signed.
Contractor contingency vs owner contingency, and why they are never added together
Contractor contingency vs owner contingency: two funds, two rule sets, two people with the pen. Added together they protect less than the total suggests.
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