Last month we did an article about our builders, and the processes that we go through to ensure that a builder is up for the job.
The phrase ‘Cost to Complete’ was something that we spoke about in reference to how we fund the projects in conjunction with the Quantity Surveyor (QS). But what does that mean?
Cost to complete is all about making sure that at all times, there is enough money left in the loan to complete the project. This is done for a number of reasons:
1. It ensures that the invoice from the builder is being checked and is realistic of the tasks physically completed. The QS will check the work that is done and confirm that the tasks are moving the project closer to completion. We make our payments based on what the QS determines to be accurate of the work completed;
2. Not that we want to assume the worst – but we do always prepare for it. Funding on a ‘Cost to Complete’ basis means that if the builder is unable to complete the job, there is enough money left in the loan to pay another builder to finish the job. This protects the integrity of the project and ensures that we don’t fall into a scenario where the progress funded is disproportionate to the work left to complete; and
3. Funding on a Cost to Complete basis also means that we are only funding items that are fixed on site, as only then do they reduce the Cost to Complete. This means that we do not fund anything unless it has been installed, and therefore cannot be taken off the site. This includes kitchen cabinetry, appliances and air con units for example – they must be installed. This provides a level of protection in the funding against ‘double dipping’.
This funding method for obvious reasons is the most common amongst lenders. We still fund from the beginning of the project, but fund for work completed monthly as opposed to lump sums over set periods of time.