The finances and complex logistics of carrying out construction projects carry risks for all relevant stakeholders, from the owner (or developer), to the general contractor overseeing the project, to the lender financing. One of the biggest risks is default due to mismanagement of funds, which accounts for a majority of defaults and liens on construction projects. This involves everything from timely payment to sub-contractors, suppliers and vendors to distribution of ongoing payments for scheduled, verified milestones, and tracking change orders, especially if they are over budget.
One of the most effective ways that lenders mitigate financial risk when underwriting construction projects is to engage a third-party firm to oversee and manage funds control over the lifetime of the project. This ensures completion on budget and on schedule, and increase transparency to bank regulators, particularly if there is an audit.