What we read
The contract exhibits rather than the sponsor summary: qualifications, buyout log, allowance schedule and the schedule logic behind the interest reserve.
Home Who we work for Construction lenders
A construction lender due diligence review before the first drawdown
You are approving a drawdown against a price and a schedule. The guaranteed maximum price caps one part of borrower cost, and the rest is the credit question.
Why it happens
Why a construction lender due diligence review happens before the first drawdown
After the first drawdown, every condition you did not attach becomes a waiver you have to grant.
The cap covers less
A guaranteed maximum price covers a defined scope. Allowances, exclusions and owner items sit outside it, inside the borrower budget.
Contingency is read differently
A borrower contingency sized as a percentage says nothing about whether it covers the named exposures in this contract.
Monitoring starts too late
Progress monitoring reports on drawdowns once work starts. It does not read the price and its exhibits before the loan closes.
The position you are in
The guarantee is narrower than the word suggests
A guaranteed maximum price caps the cost of a defined scope of work on the day it is set. Owner directed changes, allowances landing above the figure carried, excluded conditions and design development all move cost without moving the ceiling.
That portion is funded by equity, and equity is what stands between you and the collateral. The size of that category is the credit question rather than the ceiling itself.
No part of a conventional credit process reads the contract exhibits from the owner side. An appraisal accepts the budget it is given, and a plan and cost review checks completeness rather than reading the qualifications page line by line.
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.
- How much of the price is under executed subcontract?
- Which exclusions carry no quantity cap?
- Is the contingency the owner controls, or the contractor one?
- Which conditions would close the largest exposures before closing?
How it works for you
What we read, and what you get
What you get
A short memo addressed to a credit committee, sourced page by page, stating what the price covers, what is unbought and what the open exposure is as a range.
What it does not do
It does not recommend whether to lend. It gives the committee the facts in the order it asks for them, and names the conditions worth attaching.
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.
Due diligence before the first drawdown
Contingency read from the lender side
The conditions worth attaching
Contingency read from the lender side
The conditions worth attaching
What you end up with
What the credit file contains
A position, a range and a list of conditions.
What sits outside the cap
The exposures the guarantee does not cover, stated in dollars, with the contract document behind each one.
Contingency, tested
Tested against the named events in this contract rather than against a flat percentage of construction cost.
Conditions to attach
Holdbacks, reporting requirements and drawdown conditions, named while they are still negotiable.
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.