What we read
The qualifications page, the buyout log, the allowance schedule and the change order clause, set against the sponsor budget rather than against a benchmark.
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A construction risk review for investors outside their core business
You are underwriting construction risk that sits outside your core business and outside the instruments you normally use to measure it.
Why it happens
Why a construction risk review for investors reads the contract, not the model
A financial model carries a construction cost as one line. The contract decides how far that line can move.
The model treats cost as a point
A single figure with a contingency percentage says nothing about which parts of the price are bought and which are still an estimate.
Sponsor reports are selective
Summaries prepared by the sponsor are accurate and selective. They report progress toward completion, and they do not report exposure.
Four documents carry the risk
The qualifications page, the allowance schedule, the procurement log and the change terms describe more of the downside than the model does.
The position you are in
The model cannot show you what the contract left open
Your model has a construction cost line, a contingency line and a sensitivity that flexes both. What it cannot tell you is the probability attached to that sensitivity, and the probability does not live in a spreadsheet.
It lives in a set of documents describing what the price covers, how much of the work is bought, and who pays when something moves. Every one of those documents existed before you funded.
Real overruns are also lumpy rather than smooth. One uncapped exclusion or one underpriced allowance produces most of the variance on a typical job, so a model that only tests a smooth percentage is testing the least likely shape.
What you usually ask us
The four questions we hear most
Every one of them is answerable from documents you already hold, which is why the reading runs without asking the contractor for anything.
- What is the realistic range, rather than the point estimate?
- How much of this price can still move?
- Which three exposures account for most of the width?
- Who has read these documents who is not the sponsor or the contractor?
How it works for you
What we read, and what you get
What you get
The open exposure as a range built from named items, each with a low and a high, so your sensitivity runs on the actual shape of the risk rather than on a percentage.
Who we act for
Owners and capital only, never contractors. We do not price work and we do not bid, so there is nothing on the job we are protecting except your position.
Written for you
Three pieces from the same desk
Short notes on the mechanisms behind the questions above, written from the owner side of the contract.
Reading a construction budget as an investor
Underwriting risk the model cannot show
The range, not the point estimate
Underwriting risk the model cannot show
The range, not the point estimate
What you end up with
What you underwrite against
A range for the final number, not a point estimate.
The exposure in your terms
Findings translated into capital: what each could cost, how likely it is, and when you would find out.
Questions for the sponsor
The specific points to raise before committing, grounded in the documents rather than in a general concern.
A view you can revisit
The same register read monthly after signature, if you want to know when an exposure starts to arrive.
The other three
One position, four different rooms
The register is written the same way every time. What changes is who the memo has to survive being read by. The overview page sets out all four side by side.