Project monitoring

Project monitoring Evolving QS Service, next steps?

Donny Afonso B.Sc. (Quantity Surveying), PQS, MRICS

An 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 .

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 .

In addition, these industry documents can offer guidance to any QS firms that are new to the service or may feel pressured to reduce review hours . If these documents are not used, we could risk a dead-end to these initiatives and no progress on closing the service gap . How could these industry documents be used more often and what would be the next steps in implementing these documents? How would we encourage more QS firms and Lenders to refer to these guides as they pre-agree the required project monitoring reviews, and to have proactive dialogue on service gaps, if any?

Perhaps there could be a collaborative development of a standard form of contract similar to the services contracts produced by the architectural and engineering associations? The initial step could be to agree a Responsibilities and Scopes of Services Table, similar to the Schedule of Architect’s Services and Client Responsibilities used by the Royal Architectural Institute of Canada . This is a table of responsibilities enclosed with the standard form of contract used for Canadian architects . If as an industry, we produced a standard responsibilities table, it could be; 1. appended or referenced in QS proposals and/or QS contracts, and 2. enclosed in the first report issued to the Lender . Another initial step could be to agree standard reporting ‘qualifying statements .’ Having worked with various firms I have seen inconsistency in how we communicate what QSs are not qualified to do . As an example, when a project monitor report includes comments on insurance documents, do we include a consistent qualifying statement such as;

“Quantity Surveyors are not qualified to provide insurance advice. The comments in our Report are limited to reporting on the insured parties, amount of insurance and the expiry dates. We recommend the

Lender have its risk consultant review the full policies (when available) to ensure its interests are protected.”

This is one of a few reporting areas where a QS firm may have itself exposed if no qualifying statement is included . This is a higher risk in cases where the Lender is not fully familiar with the QS’s role when it performs project monitor reporting . Perhaps there could be a collaborative development of a standard list of ‘qualifying statements’ for project monitor reports . As an alternative, we could have no further industry coordination . I would strongly recommend against this as it may render the industry guide and guidance notes as stagnant, with no progress in reducing service gap risk for Lenders and QS firms .

About the author

Donny is a Principal with Pelican Woodcliff Inc ., a consultancy specializing in cost planning, project monitoring and cost control for private and public sector clients . Donny has a breadth of experience in providing construction cost and schedule advice and has acted as Lender’s Project Monitor on numerous projects . He has been a Board Director with the Canadian Association of Consulting Quantity Surveyors (CACQS) since 2014 and is currently the Secretary of the Board . The CACQS represents independent consulting quantity surveying firms and is under a memoranda of understanding with the RICS and CIQS in its mission to advance the consulting Quantity Surveying industry in Canada .

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