On construction projects that are funded by a bank, construction draw inspections are conducted to confirm progress. Before the bank disburses additional progress payments, they want to verify that the project has reached a milestone and that funds are being used correctly.
A construction draw inspection is generally conducted by a neutral third party after a pay application or draw is submitted to the lender. The purpose of the inspection is to verify that the amount requested on the draw matches the work that has been completed on site.
Here’s a look at what these draw inspections are about, what to expect, and what you can do to make the process easier.
What a contractor can expect during an inspection
Once the draw inspection has been ordered by the lender, the inspector will contact the site superintendent to schedule a time to visit the site. The goal is to have the inspection completed as soon as possible after the draw is submitted.
When the inspector visits the site, the super should expect to spend some time with them, touring the site and answering questions. The inspector will be asking about what work has been completed, the upcoming schedule, and any potential delays.
The inspector will photo document construction progress and materials stored on site. These photos are incorporated into the inspector’s report, which is sent to the bank for review.
What the inspector is looking for
Draw inspectors ultimately want to know whether reported progress matches actual progress. That means that they’ll look closely at the site and project to ensure that the draw request is valid.
Here are a few things they’ll look for in particular:
- What stage of construction each aspect of the project is currently in, reported as a percentage
- Location and quantity of materials on the job site
- Change orders, work stoppages, delays, or other relevant information to ensure the project is proceeding according to the timeline
- Invoices and other financial statements
- Legal complaince, for instance with permits, insurance, bonding, or licenses
Overall, the inspector will look over the job site comparing the work progress to the amount of work billed on the draw. Most draws are billed on a percentage of completion basis, so the inspector will be comparing that percentage to what is observed on site for each line item on the draw. Small discrepancies will probably be overlooked. Typically, inspectors will also take photographs of the projcet to include in their report for the lender.
What if the work completed doesn’t match the draw?
If there is a discrepancy between the amount of work claimed on the draw and what is complete on site, the inspector will first ask the general contractor about the discrepancy.
The discrepancy may be an error, a delay in completing projected work, or an overbilling. If it’s an error or an overbilling, the GC will be asked to revise their draw and resubmit it.
If there’s a discrepancy and the GC feels that the billing is justified, the inspector will ask for backup documentation to support the amount. If the GC is able to substantiate their draw figure, then the inspection will be completed, and the draw approved as submitted.
However, if documentation is not available or the GC and inspector come to an agreement on a different amount, the inspector will suggest a draw adjustment be made. The GC will then need to revise their draw documents and resubmit them to the bank and the inspector for approval and payment.
Draw revisions can cause payment delays for everyone down the chain on a project.
What can contractors do to speed up payment?
Stephen Board of QuickDraw Fund Control suggests that contractors — especially GCs — follow these do’s and don’ts to make the draw inspection process easier and ensure everyone gets paid on time.
If a contractor overbills, it will be discovered at the inspection, and the draw will need to be revised. This delays the documentation process and slows down payment. It’s best to submit draw requests only for the work that’s been completed or will be completed at the end of the billing period.
Support the inspector
Realize the inspector is on the same side – they don’t want to hold up payment. Inspectors aren’t the enemy. They aren’t there to challenge every draw. Their goal is to protect the bank and owner from being overdrawn on the loan. If you work with them, they’ll work with you.
Be honest if there are any issues that may hold up progress. This applies to all parties on the project. Everyone should be upfront about any delays or issues on the project, so everyone involved knows what’s going on.
Companies can take steps to protect themselves if they know there are problems. They can’t do that if they aren’t aware and only find out afterwards.
The bottom line on draw inspections
Construction draw inspections provide protection for financial institutions and banks that lend money on large construction projects. They ensure that the amounts drawn match the work completed. They also help keep the bank informed about the progress of the work and any issues that come up.
Working with the inspectors (not against them) is the best way to keep the money flowing in a timely fashion. Building a good working relationship — by following the suggestions above — will make the project go smoother and payments arrive faster.