October 2015 – The Importance of a Good Quantity Surveyor

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The Importance of a Good Quantity Surveyor

They say that no news is good news, and that is exactly the type of news we have here at GPS this month.

Economic strategies continue to subdue property price increases in Brisbane to long term sustainable increases.

New deal flow remains at all time high levels due to pull back by the banks, who continue to work on their capital requirements.

Marketers are very keen to source GPS type product to sell due to the difficulties in achieving unconditional presale contracts on yet-to-be commenced projects.

Times are good, and so accordingly, I will use this article to discuss how GPS makes use of the essential services provided by quantity surveyors (QS).

Over the years GPS has developed a strong working relationship with the quantity surveyor firm, Mitchell Brandtman. This relationship goes back to when I was a solicitor in the late 1980’s, and retained John Mitchell as an expert witness in litigation matters. When, in the early 1990’s, I told Mr. Mitchell that I was conducting construction lending, he summoned me to an education session on the topic which, in short, went as follows:

  1. You must always retain cost to complete.

This means that you must always retain, in the funded amount, sufficient monies to complete the construction work and achieve titles for the completed project. Generally a QS is thought to value the building works completed to date, however their real role for lenders, such as GPS, is to value the cost of works yet to be completed.

Progress draw payments by lenders to builders is not the value of work performed, but rather the total value of the works less the estimated costs to complete the project. The lender will then, at all times, retain sufficient funds to complete the project.

Cost to complete is imperative as the value of incomplete projects is severely discounted by prospective purchases due to the exigencies of construction and property development. The QS will also factor in an amount for time, effort, risk and use of capital.

  1. Do not lend on a project unless you have the ability to complete the project.

A good QS firm (such as Mitchell Brandtman) will have a project management division. The QS engaged by a lender will have a working knowledge of the project and all the requisite paperwork such as plans, approvals and certificates. They will be there, ready to step in on behalf of the lender if the builder fails, and will be able to continue the project without any real stoppage of building works.

As a side note, GPS also protects its position with a multi partied agreement with the builder, and assignments to it of intellectual property rights.

  1. Have the QS assess the value of the building work before you start lending for construction.

You’ll find that many builders and developers are “dreaming” on the real cost of a project. An initial assessment conducted by a QS will identify any incorrect estimates, and will avoid a serious amount of headaches later down the track.

These are very valuable lessons, and have set the basis for lending policy at GPS and our relationship with Mitchell Brandtman.

If a lender tells you they have never had a problem loan then, in my view, it is because they have not done much lending. Over the past twenty or more years I have had some problem loans, however the employment of a good QS firm can at least ensure every project is completed successfully. The involvement of Mitchell Brandtman has been a valuable tool and a significant contributor to the overall success of GPS.

While GPS and Mitchell Brandtman go through generational change and continue to refine the processes, it is satisfying to reflect that such core principles are still relevant today.

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Richard Woodhead
DIRECTOR
richard@gpsinvest.com.au

The Importance of a Good Quantity Surveyor

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