Real Estate Development – Ways To Avoid Costly Mistakes During Real Estate Development Construction!

Once the construction contractor is on site and the project is underway, it really is an amazing feeling when you start to see your real estate development project begin to emerge.

When a developer plans to sell some or all of the units, the marketing activity begins the moment financing is secured. The construction phase is usually the most expensive, so we carefully manage the project during this stage.

We schedule regular on-site meetings with our building contractor, typically every week or two, to discuss any queries or potential issues and ensure that our building contractor has complied with its Occupational Health and Safety (OHS) obligations. in English) in its entirety.

Remember that it is the Construction Contractor (not the Owner or the Architect) who represents himself as the expert in building construction. Therefore, it is never a good idea to tell the building contractor how to build the building, rather we are telling the builder the result we want to achieve, not how to achieve it.

We pay our building contractor gradually, either monthly or at the end of each scheduled construction phase, using construction loan withdrawals.

It is not unusual for the construction contractor’s claim for completed work to vary from its schedule, so it is important to make payments only for the value of the completed work.

Some developers appoint an independent building inspector to review the quality and quantity of work at each stage of progressive payment, as this sends a message to the building contractor to be vigilant. This could be your Architect or you can find a good Building Inspector from the Association of Master Builders in your area.

We try not to make changes once construction has started, as they usually end up being expensive and delay the completion date. If it is necessary to make changes to the scope of works or the finishing of the original contract, we require the Contractor to inform us in writing what the variance will be in the amount of the original contract and the time it will take so that we can approve it BEFORE we make any changes.

Before the final delivery, we have a joint inspection of the project with our building contractor (we also recommend that the architect and/or building inspector be present). A list is drawn up of all the defects and problems that the builder must solve before the official delivery of the building.

Simply, the objective of the developer under the contract with the construction contractor is to produce the designed building on time, within budget and to the quality standard that has been specified.

Therefore, during the construction stage, it is essential that a savvy developer (or their designated project manager) monitor the progress and cost of the construction work to ensure that the project is delivered on time and on budget.

Any plan/schedule time extensions or cost variances will potentially affect the profitability of the real estate development project.

The construction contract will generally detail the responsibilities of the developers/owners. Depending on the contract chosen, these responsibilities will generally include:

* to ensure proper access to the site

* to pay progress payments on time

* to ensure the complete project, after practical completion

DELAYS AND TIME EXTENSIONS

These are many reasons why delays occur during the construction stage, leading to late completion of the project. Many of these reasons are beyond the control of the contractors and some of the most common include:

* bad weather

* a delay in receiving the necessary information from the developer or consultants

* technical problems

* labor disputes

Most standard construction contracts will allow the builder to claim an “Extension of Time”, for delays caused by factors beyond their control. The practical effect of these extensions is to adjust the Completion Date that was agreed in the contract.

However, where the construction contractor is responsible for delays, whether due to lack of scheduling or for any other reason, the construction contract will often include payment of liquidated damages to the developer.

In these circumstances, when the project is delayed beyond the Completion Date indicated in the contract, allowing for any extension of time, the final payments to the contractor will be adjusted for damages, in the amounts established in the contract, for each day the completion is delayed.

RISKS DURING CONSTRUCTION FOR A DEVELOPER

Since the construction phase is typically the most expensive stage of the entire real estate development process and the period when a developer typically has the highest negative cash flow, we continue to carefully manage the project during this stage.

The construction stage can have the greatest potential effect on the final cost of construction and the time of the project. Since even brief delays or relatively small changes in construction cost can have a detrimental effect on project profitability, we recognize this stage as a potentially significant time of risk for the development project.

Risks, during the construction stage, of which we are particularly aware include:

* the contractor is unable to complete the project

* construction completion is delayed

* construction costs increase significantly

* unacceptable standard of construction work