What is a quantity surveyor report for development finance?
The initial report
Before the facility is approved the QS reviews the building contract, the plans, the consultants' fees, the program and the contingency. They check that the contract price is reasonable for the scope, that the allowances for site works, services, authority fees and landscaping are adequate, and that the contingency is sufficient, typically five to ten per cent of construction cost. If the QS finds the budget light, the lender either reduces the loan, requires more borrower equity, or asks for the budget to be corrected before approval. This is where under-priced projects get caught.
Progress reports and cost to complete
Each time the builder submits a claim, the QS inspects the site, confirms the percentage of work complete against the claim, and calculates the cost to complete: what it will take to finish the project from that point. The lender compares cost to complete with the undrawn balance of the facility plus any borrower funds still to come. If the cost to complete exceeds what is left, the lender will not fund the draw until the borrower puts in the shortfall. This is the mechanism that stops a project running out of money halfway.
When the QS and the builder disagree
The QS may certify less than the builder has claimed, either because work is incomplete or because variations have not been approved by the lender. The lender pays the certified amount. The borrower is caught between a builder wanting payment and a lender releasing less, which is why variations must go to the lender for approval before they are agreed with the builder, and why a contingency held outside the contract is essential.
When a QS is required
Banks require a QS on most multi-unit and commercial developments, and on single dwellings above a few million dollars or with non-standard contracts. Standard residential construction loans for a single house with a fixed price contract from a volume builder usually rely on the lender's valuer for progress inspections instead. Private lenders vary; some require a QS on everything, some waive it for small projects at a higher rate.
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