When managing a construction loan, both property developers and builders need to ensure that progress claims are prepared and submitted regularly, typically on a monthly basis, to maintain steady cash flow and avoid project delays. The monthly progress claim process is essential for verifying the work completed and securing timely payments from the financier. Alongside this, managing variations and reconciling each claim with the Quantity Surveyor’s (QS) initial report is crucial for staying on budget and maintaining transparency.
At Development Finance Partners (DFP), we assist developers and builders in preparing accurate and timely monthly progress claims, ensuring alignment with financiers' expectations, managing variations effectively, and ensuring all stakeholders work harmoniously to complete projects on time.
What Is a Financier’s Progress Claim Report?
A Financier’s Progress Claim Report is a document that tracks the monthly progress of a construction project, ensuring that funds from the construction loan are released in stages as certain milestones are completed. It is typically prepared by a Quantity Surveyor (QS), who assesses the project’s progress and verifies the builder’s claims. This report is critical to ensure that the lender releases funds only for completed and verified work, minimising financial risk and ensuring smooth project operations.
Key Stakeholders Involved in a Monthly Construction Loan Progress Claim:
1. Quantity Surveyor (QS)
The QS plays a crucial role in verifying progress claims submitted by the developer and builder. Responsibilities include:
- Monthly Site Inspections: The QS conducts regular site visits (typically monthly) to verify the progress of the construction work.
- Cost Assessment: They assess the monthly progress claims to ensure that the claimed costs align with the work completed on-site.
- Initial QS Report: At the start of the project, the QS prepares a comprehensive report outlining the project budget, contingency allocations, and expected milestones.
- Reconciliation with Each Progress Claim: Each month, the QS reconciles the submitted progress claim against their initial report to ensure that the project remains on track financially and operationally.
- Recommendation for Monthly Payment: After reviewing the progress claim, the QS provides a recommendation to the financier on how much of the construction loan should be released for that month’s completed work.
2. Borrower (Developer)
The borrower is responsible for ensuring that the monthly progress claims are submitted on time and accurately reflect the work completed. Their key tasks include:
- Submitting Monthly Progress Claims: The developer submits monthly progress claims to the QS and financier to secure payments for the work completed in the prior month.
- Maintaining Budget Compliance: Developers must reconcile each progress claim with the QS’s initial report to ensure that the project stays within the approved budget.
- Providing Supporting Documentation: For each monthly progress claim, the borrower must provide relevant invoices, work logs, and cost documentation to support the claim.
3. Financier (Bank or Lender)
The financier releases funds based on the QS’s monthly assessments. Their role in the monthly progress claim process includes:
- Reviewing the QS’s Monthly Reports: The financier reviews the QS’s recommendation and ensures that the project is progressing according to the initial budget and timeline.
- Releasing Funds Monthly: Once the monthly progress claim is approved, the financier releases the corresponding funds to cover the completed work.
- Mitigating Financial Risk: Through monthly progress claims, the financier monitors the project’s financial and operational risks.
4. Builder
The builder is responsible for completing the work and submitting monthly progress updates. Their role includes:
- Submitting Monthly Work Updates: The builder provides the developer and QS with a monthly update on the completed work and associated costs.
- Preparing Monthly Progress Claims: Builders submit detailed progress claims at the end of each month, ensuring that all work is accounted for and aligns with the construction schedule.
- Managing Variations: If any variations arise during the project, the builder includes these in their monthly claims, backed by supporting documentation.
5. Construction Contract Superintendent
The Construction Contract Superintendent oversees the monthly compliance with the construction contract. Their responsibilities include:
- Monitoring Contract Compliance: Ensuring that the builder’s work adheres to the terms of the construction contract each month.
- Reviewing Monthly Variations: Evaluating and approving any variations submitted by the builder, ensuring they are necessary and within budget.
- Coordinating with the QS and Financier: Working closely with the QS and developer to ensure that monthly claims are processed and variations are handled efficiently.
Reconciling the QS’s Initial Report with Monthly Progress Claims
Each monthly progress claim must be carefully reconciled with the Quantity Surveyor’s (QS) initial report. This initial report sets out the project’s budget, timeline, and contingency allocations, and serves as a benchmark for assessing whether the project is proceeding according to plan.
Steps for Reconciling the QS’s Initial Report with Monthly Progress Claims:
Review of Initial QS Report:
The initial QS report includes detailed cost estimates, project timelines, and budget allocations. Each monthly progress claim is reconciled with this report to ensure that the project remains within budget and meets its financial and operational milestones.Monthly Milestone Verification:
For each monthly progress claim, the QS conducts a site inspection to verify that the milestones set out in the initial report are being achieved. For instance, if the claim is for 50% completion of the framing work, the QS will check that this stage has been completed before approving the claim.Cost Comparison:
The QS reviews the costs submitted in the progress claim and compares them to the budget outlined in the initial report. If there are discrepancies between projected and actual costs, the QS works with the builder and developer to resolve any issues.Updating the Project Timeline:
If there are delays or changes to the project timeline, the QS updates the initial report to reflect these adjustments. This updated report will be used to assess future monthly claims.Variance Management:
Variations to the original contract often arise during construction. The QS evaluates the cost and necessity of these variations and reconciles them with the contingency budget outlined in the initial report. The QS ensures that the project remains within its allocated contingency funds.
Managing Variations in Monthly Construction Loan Progress Claims
Throughout the course of a project, variations (changes to the original scope of work) often arise. These variations can result from unforeseen conditions, design changes, or other factors. Managing variations effectively is crucial for ensuring that they are approved and funded through the contingency budget without causing project delays.
Steps for Managing Variations in Monthly Claims:
Builder Submits a Variation Claim:
The builder submits a claim for any additional work not covered by the original contract. This variation claim is included in the monthly progress report and is backed by documentation explaining the need for the variation.Superintendent and QS Review:
The Construction Contract Superintendent and QS review the variation claim to determine its validity. They check whether the work is necessary and assess whether the contingency budget can cover the additional costs.Contingency Budget Assessment:
The QS assesses how the variation impacts the contingency budget. If approved, the QS reconciles the variation against the initial report and submits a recommendation to the financier.Borrower and Financier Approval:
The borrower reviews the variation claim, and the financier decides whether to release additional funds from the contingency budget as part of the monthly progress claim.Funds Disbursement:
If approved, the variation is included in the monthly progress claim, and the necessary funds are disbursed. The QS updates the project’s financial records to reflect the new costs.
Best Practices for Developers and Builders When Preparing Monthly Progress Claims
To ensure that monthly progress claims are processed smoothly and on time, developers and builders must follow certain best practices. These practices help streamline the submission and approval process, ensuring that work is completed on schedule and that the necessary funds are released promptly.
Key Best Practices:
Accurate and Timely Documentation:
Developers and builders should maintain detailed records of work completed each month, including labour, materials, and subcontractor costs. All invoices, receipts, and reports should be organised and submitted with the progress claim.Align Monthly Claims with the Construction Schedule:
Each monthly progress claim should correspond to the project’s construction schedule. Any deviations from the timeline should be documented and communicated early to avoid delays in fund disbursement.Reconcile with the QS’s Initial Report:
Before submitting a monthly claim, developers and builders should review the QS’s initial report to ensure that the claim aligns with the project’s budget and milestones.Prepare for Monthly Site Inspections:
Builders should ensure that the site is ready for the QS’s monthly inspection, with all documentation and reports organised for review.Communicate Regularly:
Open communication between the builder, developer, QS, and financier is critical. This ensures that any potential issues with the monthly claim are addressed proactively, preventing delays in approval.
Conclusion
Monthly progress claims are a vital component of managing a construction loan. By reconciling each progress claim with the Quantity Surveyor’s (QS) initial report and ensuring compliance with the construction contract, developers and builders can avoid delays, manage variations efficiently, and keep the project moving forward. At Development Finance Partners (DFP), we work closely with our clients to streamline the progress claim process, ensuring that projects stay on track and financing is managed effectively.
Contact us today to learn how we can support your development project with comprehensive construction loan management services.
