As a rule, LCS always recommends that a lender conducts a full project review prior to closing often called a Plan and Specification Cost Review (PSCR Report). This review could either be performed by qualified in-house staff or a third-party consultant depending on the size and complexity of the project.
As construction projects become more complex and more risk arises due to market conditions, lenders need to increase their due diligence in order to facilitate a successful construction loan.
Historically, lenders initiated their due diligence mainly during the physical construction phase. However, this mindset has shifted over the years and most dramatically since the start of the pandemic as there was a need for greater attention to be focused on the project particulars earlier and earlier in the process.
What is a PSCR Report?
A PSCR report provides a full analysis of all the key documentation to identify components of the project that could cause the lender to incur unnecessary risk.
Parts of a PSCR Report
The following is a comprehensive list of what items are reviewed and what key nuances the consultant is looking for regarding these items.
Reviewed for completeness and accuracy. If the related project is ground-up construction the drawing types include; Civil, Structural, Architectural, Mechanical, Electrical, Plumbing, and Fire Protection (if applicable). If the related project is a renovation the drawing types include; Demolition, Hazardous Materials (if applicable), Structural, Architectural, Mechanical, Electrical, Plumbing, and Fire Protection (if applicable). The drawings provided should be dated, identified as ‘For Construction’, and be sealed and signed by a licensed architect. Incomplete drawing sets can lead to significant change orders, increased budget, and a delay in project completion.
Project budgets are reviewed for cohesiveness with drawings, completeness, methodology, and accuracy. Not all budgets are created equal. Ideally, the final budget should be generated using the ‘For Construction’ drawing set and dated within 90 days of the project’s start. All too often borrowers and contractors rush the generation of this document creating gaps in information ultimately causing budget increases through scope creep/change orders and schedule fade as it takes longer to complete the project. The budget should be compared to the work identified on the project drawings and any missing items should be added to create a budget that accurately reflects real project costs.
Project schedules are reviewed for methodology and completeness. Schedules should be critical path types in a Gantt format. This will allow for the analysis of the critical path components which will in turn identify any serious oversights causing delay on the completion date and an increase to the final project cost.
Environmental Reports are necessary for ground-up construction. Any issues/concerns identified in the report need to be correlated to the project drawings, budget, and specifications. Failure to make these correlations will leave gaps in the project scope ultimately affecting the final cost and schedule.
Geotechnical reports are necessary for ground-up construction. This report will identify soil issues that need to be understood prior to design/construction. Any items identified need to be incorporated into the Civil and Structural drawings and reflected in the final budget.
Constructor Contracts are reviewed for cohesiveness with design documents and budget, completeness, and accuracy. Aside from the drawings and budget, this is the most important document to review. The contract, at a minimum, should have provisions for contract sum, completion time, dispute resolution, payment terms, allowances, contingency, and retention. More often than not the constructor will try to insert components into the contract that lean heavily in their favor. While generally not an issue during the infancy of development these clauses can create an imbalance between themselves and the borrower ultimately impacting the progression of the project.
Municipal Approvals and Permits
Municipal Approvals and Permits are reviewed for effective dates and to make sure they are in place. If the permits are in place it means project drawings and specifications have been reviewed by a municipal code enforcement officer and that the design meets all applicable building codes.
Ultimately, it is the intention of the PSCR to provide the end user with a consolidated risk summary based on the project particulars. This final report can be tailored to each client’s specific needs (what documents are reviewed) based on the size and scope of the project. While a PSCR can be authored with minimal information, it’s important to provide as much documentation/information to the consultant so that the best report possible can be authored.
Do You Need Help With a PSCR Report?
LCS listens to your needs to develop products that are right for your transaction. Whether that be an individual appraisal, environmental/construction report, or a combination of services; LCS will meet your needs in the most efficient, effective way possible.
To learn more, reach out to Liz Mahoney, Director of Sales & Business Development today.