Payment During the Construction Process

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  • Before You Start
  • Build it Yourself or Hire a Developer
  • Concept and Planning
  • Creating & Managing Your Team
  • Site Selection
  • Design and Pre-Construction
  • Financing
  • Construction
  • The contractor will typically provide an application for payment (form AIA G702 and G703) on a monthly basis. This document includes a breakdown, by building trade, of the entire contract amount. It also reflects the amount completed to date, the amount remaining, the withheld retainage, and the amount due. The architect and project manager will need to review this document for accuracy before approving payment to the contractor.

    The contract with the GC stipulates the time frame within which the owner has to make payment to the contractor, usually 25 days. Within that window, the architect reviews and approves the application for payment, and the owner or project manager sends it to the lender with a requisition for payment for the lender’s review and approval. Then the lender typically sends an inspector to the site to verify that the work billed is indeed complete, and the inspector writes a report to the lender approving payment.

    Prior to authorizing payment, the lender typically collects additional documentation to support the inspector’s report. For example, the lender may collect conditional lien waivers (lien waivers that the GC gives to the lender indicating he or she has not been paid for work that has been completed, but expects to be paid based on the current month’s work) and unconditional lien waivers (lien waivers that state that the GC has been paid for the prior month’s work). The lender may also want a certification from the owner stating that there are no pending issues (i.e., that the work completed to this point is satisfactory) and that there is no change in the owner’s financial condition. The lender will also likely contact the title company and require a title update (also referred to as a title run, title bring-down, or continuation report). At this point, the lender transfers the funds to the owner, who then writes the check to the GC.

    While these steps may seem cumbersome, they are designed to protect the lender and the owner by ensuring that funds are not released until the work is completed to everyone’s satisfaction. An owner who does these transactions in a timely manner will reap the benefits of a good relationship with their GC and lender. To streamline the process, a lender’s inspector often attends monthly meetings.

    This section assumes you use the traditional approach (design-bid-build). The architect and GC in this case are overseen by the charter school representative and are critical players on the development team early on.

    Related link in Essential Resources: Managing Construction Risks

    Legal Disclaimer:

    Nothing in this material should be construed as investment, financial, brokerage, or legal advice. Moreover, the facts and circumstances relating to your particular project may result in material changes in the processes, outcomes, and expenses described herein. Consult with your own professional advisors, including your financial advisors, accountants, and attorneys, before attempting to consummate any transaction described in this material.