When working on large projects, banks and other financing companies aren’t going to send you the full loan amount up front. Instead, they will provide the funding as it is needed over the course of the project. This reduces the risk for them but can also help to lower the total amount of interest you have to pay. While using this strategy can be a great thing for everyone involved, it also presents a risk of disputes occurring when it is time to get to the next phase of funding. Draw request disputes can wreak havoc on a project and should be avoided if at all possible. The following tips can help reduce the risk of a draw request dispute.
Be Clear with the Draw Schedule
When negotiating a project, and especially the financing of the project, it is important to be very clear with your draw schedule. Simply identifying dates of draw requests is insufficient. Additionally, you need to really think through the entire project so you can predict when additional financing will be needed and how long each step of the project will take. Spending some extra time at this planning stage will go a long way toward reducing the risk of a dispute down the road.
Stay on Schedule
Keeping your work progressing on schedule is one of the most important things you can do to avoid draw request disputes. While some delays are impossible to avoid, it is usually smart to do everything you can to meet the established deadlines in your contract. In many cases, it will even be preferable to pay employees and subcontractors overtime to catch up on work than it would be to fall behind. This is because the costs associated with a draw request dispute can far surpass those of temporarily increased labor expenses.
Clearly Identify Milestone Accomplishments
While draw request schedules will often include timeframes, they will also have specific milestones set as requirements for releasing funds. As you are progressing with the work, make sure you keep these milestones in mind. Providing proof that specific milestones have been reached will eliminate the most common causes for any disputes and help to ensure your financing is provided on the agreed upon schedule.
Keep Open Communication with the Client
For many draw requests, the financing company is going to need approval or confirmation from the client or other contact used to ensure the project is on schedule. Make sure you know who the lender is working with on your loan and stay in regular communication with them so they can more easily approve the draw request. If they need to contact you for any clarification, be available to them and open with any information they require.
Take Action Quickly on Any Disputes
While these tips should help you minimize the risk of draw request disputes, they can’t eliminate them entirely. In the event that you find yourself in a dispute, it is important to take action quickly. The longer the situation lasts, the worse it can become. Talking to a construction law attorney can help you to handle any disputes appropriately and get the results you’re looking for. Contact FCLG to go over your options and get the help you need.