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Fund Monitoring – Safeguarding your Investment against Rising Construction Costs

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With over seventeen years’ experience in the industry Anthony Singleton leads our next thought leadership piece, focusing on ways to overcome some of the challenges currently facing the construction industry. He discusses what is impacting the supply chain of materials and the benefits of fund monitoring to remove risks from projects by ensuring accurate pricing.

What factors are affecting construction costs?

Over the past two years we have seen the prices of construction materials increase to an all-time high. This increase has been caused by a combination of supply chain disruptions (caused by both Covid and Brexit) and the increase in construction demand. This combination has meant that material prices have increased by upwards of 20% in some cases.

This rise in the cost of materials is not the only factor affecting the ability to accurately price construction projects, we have also seen a shortage of labour in certain trades which has meant competition for quality resources has increased which has pushed wages and salaries higher.

All these factors combined mean it is a difficult time to accurately price construction projects, particularly for contractors entering into contracts with a longer build duration. This means that now it is even more important to make sure a fund monitoring service is engaged on all projects to reduce the risks and to provide security, transparency and accuracy.

 

Engaging a fund monitoring service with the right provider, encourages the developer to be open and transparent with their costs and provides the lender with the security of knowing the funding is being allocated in the correct way.

How can Fund Monitoring offer a solution?

The benefits of a thorough fund monitoring service impacts both the developer and the lender. Engaging a fund monitoring service with the right provider, encourages the developer to be open and transparent with their costs and provides the lender with the security of knowing the funding is being allocated in the correct way.

What precautions can you take on a project?

We would advise our clients to look at de-risking the scheme wherever possible, the vesting of materials off site can often do this. Another of my recommendations would be having materials delivered at an earlier stage in the programme rather than using a ‘just-in-time’ approach. Although you may pay additional costs for storage, you will have surety that materials can be called off when you need them. Other benefits include the mitigation of the risk of any potential cost increase and the product being unavailable.

This is just an example of an initiative that could be implemented to ensure the clients risks are reduced. When looking at development finance, it is important to make sure these risks are considered properly and to plan to reduce or remove them where possible. Currently build values are increasing higher than the value of development, so ensuring viability of a scheme for all parties is paramount to keeping the industry going.

Our fund monitoring team are experienced in taking responsibility for the consideration and management of the financial risks involved in a project. Our approach means we work closely with all our teams and complete regular site visits, making sure we have open channels of communication at all times.

Why would Vextrix be the go-to consultant?

Vextrix is working across a number of sectors for clients and contractors across the UK. This means our team are well positioned to advise clients on factors affecting cost versus value of developments. Our team understands both positions and can offer advice and practical solutions to any challenges on all phases of a project.

What added value do Vextrix bring to our projects?

Our fund monitoring team are experienced in taking responsibility for the consideration and management of the financial risks involved in a project. Our approach means we work closely with all our teams and complete regular site visits, making sure we have open channels of communication at all times. Working in this way means we have an accurate and timely overview of our projects and leave our clients with a quiet mind. We are then able to provide our clients with confidence that a project is running on schedule and to budget and if necessary, we are able to quickly pick up any discrepancies and provide an informed and efficient solution.

 

For more information on how Anthony and his team can support your next project, please contact him on asingleton@vextrix.com.