OPERATIONS: FUNDS DISBURSEMENT
Progress Payment Submittal Requirements MANAGING THE DISBURSEMENT OF FUNDS IS THE KEY TO ENSURING A CONSTRUCTION PROJECT IS COMPLETED WITHIN BUDGET.
DAVID JACOBS
C onstruction lenders often include specific requirements for progress payment requests in their loan agreements. This is an excellent way to guard against misuse of funds during a construction project. As a developer, you can follow this lead and establish similar requirements for projects that do not involve a lender. Whether or not a construction lender is involved in your project, it is in your best interest as a developer to outline the specific requirements for the contractor to submit payment applications. When you include these requirements in the construction contract, you establish that the contractor is required to submit proper documentation to
receive progress payments. The documentation allows you to accurately track progress, mitigate the risk of having a lien filed against your property, and ensure that funds are applied appropriately throughout the project. DETAILED BUDGET Before the start of construction, the first step is to work with the contractor to create a detailed line item budget. The budget should be thoroughly broken down into line-item categories that detail individual items of work to be completed. Stay away from combined line items such as “office repairs,” if possible. Instead, break this item down into
relevant categories such as framing, rough electrical, sheetrock, painting, etc. The budget can be managed using industry-standard forms such as the AIA G702/G703 or on a spreadsheet template. Once the budget is developed and agreed upon, set a requirement that the contractor needs to submit requests for payment with all individual costs billed to specific line items. This lets you track the progress of individual items of work and the total level of completion for the project. COMPLETE SET OF INVOICES The next requirement is for the contractor to submit a complete set of
50 | think realty magazine :: may - june 2024
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