Due Diligence Flashcards
- What are the key areas of risk to funders?
Cost increases
Programme increase
Drop in GDV – market downturn, quality issues
- What is headroom?
The balance between lending and the GDV
- What are security that a lender would typically require?
Charge over the site
Assignment right for CW’s, Insurances, Contract
Co-Insured
Step In rights
Subordination deed
Undertaking from the Borrower’s Solicitors to deal with the distribution of sales proceeds
- What typically makes up a contract?
Contract Amends ER’s Appendix: (CSA, Design, Site Info, Prelims, Warranty, Bond, PCI, TQ, Clarifications) Contractor’s Proposals
- Explain what the ER’s do?
ER’s detail the requirements where the contractor is to complete the design.
- How might you ensure that the ER’s took precedent?
Contract Amendment swapping the prececne of the CP’s to the ER’s
- How do you assess the sufficiency of construction costs?
Using benchmarking data to identify that the costs were in align (ideally over) comparable projects
- Sufficiency and type of risk allowances?
5% minimum construction risk allowance
10%+ on existing buildings traditionally procured
- How would you assess the suitability of a construction programme?
BCIS Contract Sum & type of work & area = Range expected by comparison of similar project
- What are the drawbacks of BCIS (programme review)?
Only guidance as every project is different so no it is challenging to directly compare. BCIS only cost
- How might you advise a lender if a project programme was very short?
If a programme was deemed to be insufficient I would flag this as a risk to a lender as they should consider that the borrower will have to incur higher financing costs and the lender will not be able to retrieve their funds for a longer period of time
- How might you advise a lender if a project programme was very long?
This would be preferred if the programme was deemed to be realistic. It would be worth identifying why the programme was long e.g. facilitating works required prior to commencement
- What is the planning approval process and why does it impact development?
Pre-Commencement – Detailed drawings to be approved
Pre-Occupation – Building regulations sign off
Compliance – Site working hours
- What is building control and why does it impact development?
A Building Control officer must be assigned to inspect the construction of the works to ensure it complies from critical structural and fire safety perspectives?
- Why might building regulations be an issue to the lender?
Failure to comply could result in significant delays if works have to cease or sign off cannot be given to facilitate the funding exit by sale/letting.
- Were third party rights applicable on the project?
TBC – manged through the use of CW’s
- Examples of surveys undertaken for the project?
BAPA - Basic Asset Protection Agreement – ensures that the development does not impact on adjacent train.
CaRT Canals and Rivers Trust
Oversailing
RoL
- What are the typical insurance requirements on a project?
Contractor All Risk - unforeseen loss or damage to building works, machinery movement, advanced business interruption
Professional Indemnity – provide cover for claims which arise out of the conduct of professional business.
Employer’s liability insurance - help pay compensation if an employee is injured or becomes ill because of the work they do for the employer.
Public liability - Cover against claims by public visiting the site or adjacent to the site or indepent sub contractors
- How did you identify that all construction costs had been accounted for?
a. Benchmarking
b. Costs for top 3 components
c. Costs for abnormal / individual elements
- What did you recommend in relation to the ground investigation report (MWL)?
The report conculsded that the ground investigation results demonstrated that there was not a cause for conern in relation to the construction of the proposed works
- Were there any other reports?
RoL – Deemed no parties would be detrimentally impacted by the development
Flood risk – Not at risk from groundwater flooding.
Recommended that residential areas should be 600mm above design flood level
Landscaping gradients to be directed away from the building
- How did you assess how appropriate risk allowances were?
Initially the borrower had included a 1% construction risk allowance for the development. I advised that a minimum of 5% should be stipulated by the lender
- What is a cost overrun guarantee?
In cases when project costs exceed the budget – a situation known as “cost overrun” – the sponsor (or another company from the borrower’s group with a good financial standing, acting as a guarantor) is required to provide additional equity pursuant to a cost overrun guarantee, which is a standard security in real estate development financing. Typically this cost guarantee is limited to between five and 10 percent of the total project costs. Not providing the additional equity within the time period required by the cost overrun guarantee constitutes an event of default
- What were the implications of the chosen procurements route?
D&B – the risk of the design was passed to the contractor
- What items were not included? Did you find the items?
Site Attenuation £0 – Provision of the detailed CSA identified that adequate allowance had been included for attenuations wors
- What did you recommend for H&S arrangements?
Principal Design Appointment
F10 submitted
Construction H&s Plan
Pre-construction H&S plan
- Why was this important? H&S Recs
HSE mandatory requirements
- Who takes responsibility for H&S?
Client however they should ensure suitably professionals are appointed to undertake responsibilities on their behalf.
