Tag Archives: change orders

How Are Funds Dispersed From a Construction Loan?

How Are Funds Dispersed From a Construction Loan?

Reader CASSANDRA in ROXBORO writes:

“When applying for this construction loan as each job is done will the money be dispersed as each job is finished and inspected.? Do you know any in North Carolina that does the whole build or has turkey homes?”

Mike the Pole Barn Guru writes:

Draw requests all start with a draw schedule. A construction loan draw schedule is a detailed payment plan for your construction project. These are typically split up into various milestones or overall project phases.

With a draw schedule in place, an owner or project manager will submit a detailed report of work completed at certain points. This report should be substantiated by a bundle of various documents offered as work performed proof. If everything checks out, payment will be released. This bundle is commonly referred to as a draw request.

A draw request isn’t just a simple form. It’s a document bundle submitted to your lender requesting funds to be released. These documents are meant to provide clear evidence work has been completed and support costs associated with reaching a draw milestone.

Draw amounts are based on cost breakdown for each particular milestone. Documents required for each draw depends on your lender (and sometimes your state).

Critical inclusions in a draw request are invoices and receipts for work performed during draw period. These should be collected from all subs and suppliers before submitting a draw request as justification for funding. Whether for work performed, or materials purchased, they should be sufficiently detailed to justify a draw request. Having all your invoices properly organized before submitting them to your lender, can save them time reviewing request, and can get you paid more quickly!

A values schedule is a document listing all line-item tasks needed to be completed along with an estimated budget for each task. Each line item should be updated with each draw request. Tracking work through a values schedule helps keep track of how much money has been spent with regards to work completed to date amounts.

Change orders come up on just about every construction project. Anytime there is a modification or deletion to original construction plans; a change order will arise. Change orders will provide a detailed changes made description, and any additional time costs incurred by your contractor.

Lien waivers should be submitted along with every invoice. These will typically be conditional waivers since payment has not yet been made. Because a mechanics lien filing is the most prominent form of risk concerning lenders, a draw request will likely be postponed until all lien waivers have been submitted.

Finally, some overview or explanation of your job’s progress will typically be required. This might be as simple as identifying milestones reached or providing a checklist of itemized tasks needed to be completed to substantiate your draw request.

There’s not a substantial difference between draw requests and pay apps, but it is more than just semantics.

Payment applications are submitted to a customer as an invoice for performed work. Contractors and subs will submit payment apps to then be verified by owner or project manager, and ultimately submitted as a draw request.

Draw requests refer to bundle documents submitted to your lender in order to draw payment for work performed. Draw requests are usually made by an owner or project manager, made up by any number of pay apps and other supporting documents collected by prime contractor(s).

While both draw requests and payment applications feature similar documentation, these terms shouldn’t be confused. It is more accurate to refer to draw requests when exclusively discussing demands for payment from a lender. Conversely, when payment requests are submitted to some other party (like an owner or contractor), “payment application” is more appropriate.

Once a draw request has been submitted to your lender, their review process begins. Your lender needs to review all documents, order and approve inspections, and verify all work claimed to be completed, has been. This draw approval process ideally takes about seven business days. However, depending on size, complexity, and amount of draw request documents, this can take much longer.

When a lender has to request additional documentation or has to verify certain information as correct, payment is slowed down for everyone on your project – and it has a snowball effect. It takes time for payments to wind through payment chains. Funds must reach each chain link, and every time payment changes hands, there’s potential for additional delays. So, when submitting construction draw requests, it’s essential to have all information accounted for and organized. Streamlining your lender’s release of payment means streamlining payments for even construction payment chain’s lowest tiers.

You may want to give strong consideration to acting as your own General Contractor:





You Have to Get It In

Disclaimer – this and subsequent articles on this subject are not intended to be legal advice, merely an example for discussions between you and your legal advisor.

Please keep in mind, many of these terms are applicable towards post frame building kits and would require edits for cases where a builder is providing erection services or materials and labor.

PREMISES: Purchaser will be responsible for personal injury or property damage sustained by anyone entering the jobsite, as well as security. Purchaser warrants soil is of bearing capacity to meet what is stated in the Agreement. Seller has not made any soil studies, and the determination of any need for a soil analysis, as well as the costs of the same, shall be made by and paid for directly by Purchaser. In the event soil bearing capacity is less than as stated, any and all costs of redesign, redrafting or reengineering shall be paid for by Purchaser.

This version of “premises” is written specifically towards built buildings and is, for practical purposes, a ‘hard rock clause’:

PREMISES: Purchaser will be responsible for personal injury or property damage sustained by Purchaser or third parties who enter the jobsite, and for all security at jobsite. Upon completion, Seller shall remove all of Seller’s tools, construction equipment and machinery from the building site. 

Purchaser warrants that all soil is clean, unobstructed, of adequate bearing capacity and meets a minimum of 95% compaction. Seller’s price allots a maximum average of 30 person-minutes per column hole for hand-digging or 10 equipment-minutes per column for auguring, with excess time to be paid for by purchaser pursuant to Section xx of this Agreement, “Change Orders”. 

Purchaser to absorb all costs associated with underground water or unexpectedly high water table including, but not limited to, diversion of flow or removal of water from column holes. 

Seller has not made any soil studies, and the determination of any need for a soil analysis, as well as the cost of the analysis, shall be paid directly by Purchaser. 

Should asbestos or other hazardous waste be discovered during the course of Seller’s work, Seller will promptly notify Purchaser, who must advise the applicable governmental agencies. It shall thereafter be Purchaser’s responsibility to contract a certified hazardous waste removal contractor in order to perform all asbestos or hazardous waste removal. 

For extended reading on ‘hard-rock’ clauses: https://www.hansenpolebuildings.com/2014/03/hard-rock-clause/

TRANSPORTATION/SHIPMENT: Other than ferry charges, freight and transportation charges within the Continental United States are included in sales price unless otherwise expressly stated in the Agreement. For projects outside of the Continental U.S., shipment is made to a mutually agreeable port, or is available for “will call” at one of Seller’s distribution points. If needed, Purchaser will provide any permits and/or pilot cars for oversized loads, and equipment and/or labor required to unload trucks. 

Purchaser shall make access to the building site available at all times to Seller’s agents for purposes of delivery. 

Materials delivery challenges: Once any material leaves the truck bed it becomes responsibility of the Purchaser and all risk of loss, damage, and other incidents of ownership shall immediately pass to Purchaser, but title to such materials will be retained by Seller as security interest for Purchaser’s performance until payment in full is received. This security interest constitutes a “purchase money security interest” pursuant to the Uniform Commercial Code. 

Signed delivery slips shall be proof of receipt of materials in good order. Acceptance by common carriers shall constitute delivery, therefore, the freight carriers are liable for materials lost or damaged in transit and (in case of loss or damage en route), Purchaser must immediately notify the carrier’s agent at destination, in order to establish a formal claim when presented, and no claims for damages shall be made against Seller.

PROTECTION OF WORK: It is agreed Purchaser shall be responsible for replacement of any stolen or damaged material after delivery in good order.

DELIVERY ACCESS: Purchaser shall provide clear, level site, with sufficient area and adequate access (at least 10 feet in width and up to 14 feet of height) for trucks to make delivery without danger to property or equipment, and shall assume, pay and hold Seller harmless from all claims of damages to property of others. Delivery trucks may be semi tractors pulling 48′ or longer trailers. If a site does not have adequate access, it is the responsibility of the Purchaser to find a suitable alternative delivery location. 

Drivers are instructed to not risk themselves, their loads, or their equipment in an attempt to make delivery to a location driver deems as unsafe. The final decision as to adequacy of access shall be determined by the truck driver. Should, for any reason, adequate access is unavailable and Seller’s truck must make another trip to the job site, Purchaser agrees to pay the cost of an extra delivery at $5 per loaded mile, with a $250 minimum. 

In the event Purchaser instructs a driver to access over a particular route or area and the truck becomes stuck, requiring towing, or causing damage, Purchaser will absorb all expenses, including a minimum of $120.00 per hour truck standby time for each and every hour, or partial hour, truck is stuck or delayed. Purchaser shall be responsible to provide safety jackets, warning signs, whistles and persons to direct traffic, if necessary, to allow access to the jobsite. Should materials NOT be able to be delivered and properly stocked, the Purchaser agrees to absorb all costs of moving materials.

Change Orders in Contracts

Disclaimer – this and subsequent articles on this subject are not intended to be legal advice, merely an example for discussions between you and your legal advisor.

Please keep in mind, many of these terms are applicable towards post frame building kits and would require edits for cases where a builder is providing erection services or materials and labor.

George Headley wrote an article for Construction Business Owner, on how contractors can improve their change orders. For those who are curious, this article can be read at: https://www.constructionbusinessowner.com/strategy/business-management/october-2015-improve-your-change-order-requests

An average Hansen Pole Buildings client requests 10-15 quotes before finalizing their pole building design. After all of these tweaks, we assume our client has dialed it in and knows exactly what they are getting. Sadly, there are some who have second (and third or fourth) thoughts and either want or think they want to make changes.

When a client even considers making a change after order, it stops wheels of progress on not only their project, but others as well. Our staff is now taken away from their everyday work – just to get information so you can decide whether you want to make a change or not.

Everyone’s time is the most valuable thing they own.

changeCHANGE ORDERS: Purchaser may request modifications or changes to the building specifications or the scope of work. ALL such requests must be made directly to the Seller’s office. Seller will be unable to honor requests made to any other parties. Any and all modifications or changes requested by Purchaser to the building specifications or the scope of work should be executed only upon a written Change Order, approved by Purchaser on Seller’s approved form(s). 

If the Purchaser is more than an individual, any one person or their authorized representative(s) may execute Change Orders. All Change Orders resulting in added charges are due and payable upon acceptance by Purchaser, unless such Change Orders are executed prior to preparation of finance loan documents and can be included in total loan amount. 

Properly executed and accepted Change Orders take precedence over specifications stated upon this Agreement. Unless a Change Order has been prepared in writing and signed by Purchaser, the cost of processing or completing and Change Order shall be simply calculated on the basis of (1) A labor rate of no less than $xxx per person-hour, or any portion thereof, for all office or administrative time spent on processing a Change Order which is processed by Seller, but which Purchaser elects for any reason not to have performed, (2) a flat labor rate of no less than $xxx per person-hour, or any portion thereof, for all Seller’s or Seller’s agents who work on the Change Order, (3) Two (2) times the cost of all actual material costs invoiced to Seller, including delivery and freight, for Change Orders actually performed and completed by Seller. 

Should Purchaser and Seller be unable to agree on the cost of a Change Order, Purchaser authorizes Seller to charge Purchaser’s account at the above rates.

CONSTRUCTIVE CHANGES: May result from any oral or written act or omission by Purchaser or Purchaser’s authorized representative which causes Seller to perform work beyond the scope of the original Agreement or approved Change Orders, including, but not limited to, changes in the method of performance, misinterpretation of specifications, over inspection, rejection of conforming work, or rejection of “or equal” substitutions. Any such constructive change will be paid by Seller at the rates established in Section xx of this Agreement, “Change Orders”.

Building Codes and Requirements in Contract Terms

Building Codes and Requirements in Contract Terms

Disclaimer – this and subsequent articles on this subject are not intended to be legal advice, merely an example for discussions between you and your legal advisor.

Please keep in mind, many of these terms are applicable towards post frame building kits and would require edits for cases where a builder is providing erection services or materials and labor.

BUILDING CODES: The Total Cost of this Agreement is based upon an agreement between Purchaser and Seller, for Seller to perform according to a specific scope of work, per code and loading information as stated in the Agreement. Total Cost to Purchaser may be increased depending upon the review completed by one or more of Purchaser’s permit approval granting agencies, which include, but are not limited to building and land use departments, in which event either the Seller or Purchaser shall be relieved of further obligation under this Agreement if the increase in Total Cost is greater than ten percent (10%). 

In the event the building department, any other governmental agency or agent may require revision(s), further documentation, or explanation of any work after one initial plan check/review, Seller will advise the Purchaser of any required changes or modifications. Upon notification by Seller of extra work or materials required, Purchaser shall authorize Seller to perform such according to Section xx of this Agreement, “Change Orders”. 

Seller is not responsible for any plan check fees, re-inspection fees, special inspections, analyses or reports which are not ordinarily provided by Seller to a building department, plan check or inspector, including, but not limited to any additional charges resulting from unfamiliarity of said person(s) with either post frame buildings in general or the work as specifically designed by Seller. 

Once the approved plans and specifications have been reviewed by the applicable jurisdictions and building permit has been issued, both Seller and Purchaser may rely upon those approved plans and specifications as conforming to all applicable regulations and building codes of the jurisdictional building authorities. 

Total cost, unless otherwise specified, includes two sets of engineered 24″ x 36″ plans. Extra sets are available at time of order for $xx per set. Plans will be made available online (once drafted) and must be fully reviewed and approved by the Purchaser prior to deliveries being scheduled. Time spent handling calls or Emails made by the Purchaser, Purchaser’s agent(s), or Purchaser’s permit issuing agencies to engineer of record will be paid for by Purchaser, directly to the engineer, at engineer’s prevailing rate. 

In the event any conflicting information is found on the plans, Purchaser agrees to immediately notify Seller. Seller will promptly clarify or correct any conflicting information (at no charge to Purchaser), this being Purchaser’s sole remedy. 

Building Codes require attics above insulation to be ventilated with a net free area (NFVA) not less than 1/150 of area of space being ventilated. NFVA may be 1/300 of area of space ventilated, provided 50 percent of required ventilating area is provided by ventilators located in the upper portion of space to be ventilated at least 3 feet above eave, with balance of required ventilation provided by eave or gable vents. Purchaser to make provisions for adequate ventilation, if not so included in Agreement.

My commentary: permit issuing authorities can and will do some absolutely bizarre things. Often all it takes is one new person in a department who is fresh out of school and wants to prove their brilliance by upsetting an apple cart. This caps these unforeseen costs to both parties.

PER ANSI/TPI 1 LEGAL REQUIREMENTS MANDATE: In all cases where a Truss clear span is 60 feet or greater, the Owner (Purchaser) shall contract with any Registered Design Professional for the design of the Temporary Installation Restraint/Bracing and the Permanent Individual Truss Member Restraint and Diagonal Bracing. In all cases where a Truss clear span is 60 feet or greater, the Owner (Purchaser) shall contract with any Registered Design Professional to provide special inspections to assure that the Temporary Installation Restraint/Bracing and the Permanent Individual Truss Member Restraint and Diagonal Bracing are installed properly.

For extended reading on this subject, please visit: https://www.hansenpolebuildings.com/2019/09/responsibilities-where-the-legal-requirements-mandate/

Talking Contract Terms

Talking Contract Terms

I may have previously mentioned contracts and their terms are boring – until a conflict or even worse arises.

Disclaimer – this and subsequent articles on this subject are not intended to be legal advice, merely an example for discussions between you and your legal advisor.

Please keep in mind, many of these terms are applicable towards post frame building kits and would require edits for cases where a builder is providing erection services or materials and labor.

GENERAL Is just as it sounds – a starting point.

GENERAL: This agreement constitutes the only agreement between Seller and Purchaser and supersedes all previous Agreements, conditions, contracts, designs, discussions, negotiations, quotations, plans, promises, representations, and/or terms on this sale either verbal or written. It is understood that there are no oral or other agreements between the Seller and the Purchaser with regards to the Subject of this Agreement which are not incorporated herein. The extent of the Seller’s obligation is covered in this Agreement and this Agreement only. This clause is not a mere recitation of fact but is intended to be an absolute and binding acknowledgement of legal consequences. Sales and delivery (as well as installation, if provided) of the materials/goods are made subject to the terms and conditions stated herein, not withstanding any contrary provisions in purchase order since received by Seller. Purchaser shall make access to building and building site available at all times to Seller or Seller’s agents for purposes of construction or repairs. Purchase grants Seller, without limitation, the right to utilize Purchaser and aforementioned improvements for advertising and promotional purposes.

Why this is important.

Chances are good Purchaser is going to be having conversations with multiple possible providers prior to picking one. Seller might very well have hundreds (or even thousands) of clients they are interacting with. All of these back-and-forths lend themselves to a great deal of possible confusion. In order to protect all parties involved (and should there be no equitable resolution and it ends up in court), if it is not in writing, it does not exist.

Some Purchasers (generally governmental bodies) attempt to make changes to contracts by issuing Purchase Orders with contrary provisions – this terminology expressly throws out those potential changes.

Now it may seem obvious to provide access – however I have personally experienced challenges including locked gates and weapons.

Seller is going to pour their heart and soul into this building (or certainly should be) and as such deserves to be able to benefit from their efforts in advertising and promotion.

SCOPE: This is not an estimate or a bid; it is a legally binding contract. Only the written contract documents identify the scope and detail of materials to be furnished or work to be performed by Seller. Furthermore, Seller’s duty is to deliver and/or build according to the contract documents only. Any drawings, sketches or specifications furnished separately by Purchaser are expressly excluded from inclusion in the contract documents. All work performed or materials supplied by Seller, which is not specifically detailed in this Agreement, shall be performed pursuant to Section xx, “Change Orders”, of this Agreement.

Purchaser is purchasing a materials only pole (post frame) building package, designed per Seller’s plans which are produced under the direct supervision of the independently contracted (by Seller) third-party Engineer of Record (E.O.R.) and Seller’s Construction Manual. This is not a precut building, nor is the structural design to be determined by Purchaser or Purchaser’s agents. Assembly, by Purchaser or Purchaser’s agents, including measuring, cutting and the use of tools, will be required. Some components may come all or partially assembled (e.g. , entry doors are most often shipped as pre-hung), however most items (such as, but not limited to, sliding and overhead doors) require the assembly of sub-components. Steel roofing, siding and trims often require cutting and/or splicing. It is the discretion of Purchaser or Purchaser’s agents to utilize the materials provided so as to minimize splices, as well as the creation of waste or scrap. No overage of any materials is provided for in this Agreement. Any and all usable surplus materials remain the property of Seller, and are to be protected from theft, damage or deterioration by Purchaser. Purchaser is to advise Seller of any usable surplus materials. Upon request of Seller, Purchaser will either return excess surplus materials to Seller, or shall promptly pay Seller for them pursuant to Section xx of this Agreement, “Change Orders”.

Purchaser acknowledges the responsibility to read and understand fully all written and electronic information provided by Seller, including but not limited to any plans, Materials lists, Seller’s Construction Manual, as well as and including inventory and inspection guidelines.

Any Purchaser-performed work such as site preparation is to be performed promptly, without delay to Seller.

While this may appear to be ‘common sense’ common sense is far from common and again – if it is not spelled out, in writing, it does not exist.

Watch for my next thrill packed installment of this series!

A New Pole Building: The World it be a Changing

You’ve shopped for a new pole building from several vendors, negotiated features and pricing and have finally ordered. Everything is clicking right along until…..you decide to change something.

In the case of Hansen Buildings, we strive for quick deliveries, so we begin processing your order as soon as our client’s press the submit button on their invoice approval.

Now how can we do this? We have developed proprietary software which does all of the structural design, calculates the needed materials and even issues purchase orders and shipping information. It is pretty much all automated ….. so when you decide to make a change after the fact, all of the wheels of progress need to come to a screeching halt.

If you want to make a change within the first 24 hours after placing your order, we can usually make it happen and we charge only a modest processing fee plus the cost of whatever the change is. Should a change be requested, and then not ordered, we do expect to be paid for the staff time it took to research. Usually the time is minimal; however there are instances where several hours of time are invested on the client’s behalf. This time includes our having to contact every one of our manufacturers and suppliers who would possibly be involved with the requested change on your new pole building.

Keep in mind, this is a request to make modifications or changes in the building specifications or the scope of work. If the change is possible, we make every effort to hold costs to a minimum and any changes which can be made, will occur only once the client has approved the order online. In the event a cost occurs with the change order, it can only be processed with full payment.

Change orders take precedence over any specifications of the original order.

After the first 24 hours, making changes can become difficult or impossible, without significant financial costs.

Another type of change order would be a “constructive change”. This is when an oral or written act or omission of the purchaser causes us to have to perform work beyond original agreements or change orders.

What could these be? Requesting deliveries on either a certain day, or specifying or limiting the equipment which may be used for delivery. Refusal of a scheduled delivery. Not understanding what was ordered (yes, it does happen from time to time). Failure to have verified code and load conditions. Rejecting work (like building plans) or materials which meet the requirements of the agreements or are an “or equal” substitution.

The easiest way to avoid the possibility of any unplanned charges on your new pole building is to make any changes prior to placing an order. Knowing what features best solve your needs, in advance, saves money, time and possible anguish for all parties involved.

Bid Jobs: How Do Contractors Blow Budgets and Still Get Paid?

How do Contractors Blow Budgets and Still Get Paid?

Bid jobs are a miracle all in themselves. Usually they begin from an interested party at an organization realizing, “Hey, we need a new building”.

Bid Jobs

Eventually they will get enough of their cohorts involved to reach a critical mass. One of them will then go forth and (after doing some level of research), obtains some price quotes.

At times, some things tend to be overlooked in the early stages of the process. The most overlooked – between the beginning and the time the project goes out for bid, an architect or engineer will probably be hired. This will generally astronomically increase the complexity of the project. Next most overlooked – if this is a publicly funded building, labor to construct it will probably be governed by the Davis-Bacon Act. This act, dictates prevailing wages and benefits must be paid to laborers who work to assemble the building. This, in itself, can significantly raise the price of the completed project. In many cases, unusual insurance and/or bonding stipulations are required (usually at an architect’s insistence), further bumping up costs.

Assuming all of the previous bid job pitfalls have been survived, the project goes out to bid.

Now reality sets in – as generally the project bids will overrun the initial budget. Often by two or three times budget. Why? Reflect back to the overlooked items above.

The budget either gets bumped up (usually the case, as by now, all are convinced the building has to be built), or the scope of the project is reduced.

And it goes out for bid again…..

I’ve been a general contractor, so I will explain how the results turn out in reality, rather than how they should turn out.

In most cases, the lowest bidder will lose money on the project, exactly as the project is specified in the bid documents.

The answer to this dilemma?  Make darn sure you know exactly what you want in the beginning, and don’t make any changes.

Carefully watch how your money is being spent

After being awarded the bid, the low bidder first does the “OMG – I got the bid”, as they know the lowest bidder has to work like crazy in order to turn a profit.

And how do they turn lemons into lemonade? First, the bid documents are scoured to minimize the cost on every possible item. No stone is left unturned, and if it means a sacrifice in the quality of the finished project, so be it.

The number one way to salvage….Change Orders.

The contractor has been awarded the bid to provide the materials and construct the building. Any changes will be expensive…what is the alternative? Have someone else come in to do some very small portion of the work, or provide an individual item or items? It isn’t happening.

You and your organization have no real practical choice, you have “bought the proverbial farm”.

Change Orders are the low bidders’ salvation; they count on them to guarantee a profitable outcome on any bid jobs.

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