Project monitoring
Evolving QS Service, next steps?
A
n increasing number of quantity surveying (QS) firms are offering the service of ‘Project Monitoring’ or ‘Loan Monitoring.’ This is the due diligence service that Lenders require to protect their loans on construction projects. The construction Lenders want to know that the remaining construction can be completed with its loan, and they engage quantity surveyor firms for this cost advice during construction, to mitigate the Lender’s financial risks. The advice is meant to be an independent cost opinion (‘Financial, Regulatory, and Technical Reviews’) to: 1. review the budget and confirm it is adequate and to review regulatory and technical documents before the loan starts its advances, and 2. to update the Lender during construction on its financial risks, confirm the costs incurred and confirm that the remaining loan is sufficient to fund the remaining construction costs. My understanding is that the project monitoring service in Canada was created to protect against a repeat of the painful construction lending losses experienced
in the 1990s. The construction industry is known to be slow to accept change or slow to respond to external market factors but, over the past two decades, more Lenders are asking for this quantity surveying service. Furthermore, Lenders are expecting more from the Quantity Surveyors performing these services. With developers or contractors expected to pay for the project monitoring service, the difficulty is matching the Lender’s need to the cost of these services. On smaller projects, the need is still there, but the commercial viability of the project is generally more delicate so the Lender sometimes adjusts the required level of QS advice. Similarly, with more QS firms providing the service, competition adds pressure on reducing fees. A reduction to the QS fees would make it increasingly difficult to meet the Lender’s needs and some quantity surveyors would reduce the review hours accordingly. The reduced service or reduced review hours pose an obvious ‘service gap’ potentially missing financial and technical issues, thus affecting the project and, ultimately, both the Lender and the QS firm.
14 | CONSTRUCTION ECONOMIST | www.ciqs.org | Spring 2017
Donny Afonso B.Sc. (Quantity Surveying), PQS, MRICS
In recent years, two industry initiatives have been launched to try reduce this service gap and to try to help Lenders and QS firms identify a standard for the project monitoring service. The Canadian Association of Consulting Quantity Surveyors (CACQS) launched its Best Practice Guide in 2014. The guide is a collaborative initiative by 17 QS firms for the best practice on QS services and is meant to assist clients hiring QS services. This Best Practice Guide includes a section on the project monitoring service. After industry consultation with Lenders and QS firms in various Canadian cities, the RICS and the CIQS jointly launched their project monitoring guidance note in 2016. The CACQS updated its Best Practice Guide in April 2016 and incorporated various components of the RICS/CIQS guidance note into its project monitoring section. These guide and guidance notes are represented to be helpful tools for: 1. Lenders to identify and pre-agree the terms of engagement required for their Project Monitors, and 2. making progress towards standardizing the service. To return to Table of Contents CLICK HERE
