QuickDraw Answers the Question: What is Construction Funds Control?
If you’re working on a project that is using construction loan funds control, you may be wondering, What exactly is it? Simply stated, construction funds control is a process wherein a third-party firm (like QuickDraw) manages when and how funds are disbursed to contractors, subcontractors and suppliers on a construction project.
Since construction projects carry certain risks, lenders implement construction fund control to mitigate financial risk during the construction process and ensure that projects complete within their allotted timeframe and on budget.
Prior to construction, a lender will engage a construction risk management firm for funds control, and that firm will conduct a thorough document and cost review of the project. This process involves a review of the contract, plans and draw schedule of values to ensure that they are suitable.
After construction begins, the funds control firm will continue to receive and review all draw requests (invoices) from contractors, subs and suppliers. At the same time, it will evaluate the progress of construction to ensure that work is being completed as scheduled and all materials are on site. Fund control also involves obtaining lien waivers from subcontractors in order to protect the property from construction liens.
Clearly, a funds control firm needs to work quickly, efficiently and accurately in order to avoid delaying construction, making it critical for lenders to select a fund control provider who is reliable and reputable.
There are four basic steps in the fund control process.
- Construction Document Review
As already discussed, the fund controller will begin the process by reviewing all project documents and contracts to make sure the budget and terms align.
- Funds Review
When a general contractor submits a draw application, the fund controller will review all supporting documentation, including subcontractor and supplier invoices, conditional lien releases and other documents to verify project costs. The fund controller will also track change orders and reallocation of funds to check for “front loading” (upfront payments before work has been completed) or incorrect payments.
- Site Inspection
The fund control firm will send an inspector to the construction site to verify that all materials in the payment application are either installed or present on site. Sometimes, the inspector will ask the GC to provide additional documentation. Based upon this information, the inspector may adjust the payment application to reflect actual construction progress.
- Fund Disbursement
After approving a draw, the fund controller will write joint checks to the general contractor and their subcontractors and suppliers. After the GC endorses them, they are sent to the other parties to be cashed.
While it is true that fund control means more paperwork for general contractors, there are upsides that make it worthwhile. With so many payments occurring during a construction project, errors can easily occur and payments can be missed or delayed. Having a fund control partner in the mix is actually good for GCs, subcontractors, vendors and materials suppliers, since they can be sure that someone is watching their money and processing payments efficiently. Funds management also keeps all documentation organized for the stakeholders, with electronic record-keeping that makes information transparent and simpler to track through the lifecycle of a project.
QuickDraw is the go-to fund control partner for residential, commercial and industrial construction projects of every size, style and price point. From coast to coast, QuickDraw works to make the fund disbursement process a positive experience for all, with an array of related services, including: Fund Control, Site Inspections, Cost Reviews and Portfolio Management.