What to take into your next appraisal
- Separate paid costs, incurred unpaid costs and future work.
- Use the latest forecast, not an unchanged original budget.
- Compare remaining costs with usable committed funding.
Keep the cost categories mutually exclusive
Paid-to-date is a cash measure. Incurred cost may include certified work that remains unpaid. Contract commitment includes both work already performed and work still to be delivered. If the entire contract sum is added to paid-to-date, the same work will be counted twice.
OCC construction-loan guidance discusses disbursement controls, inspections and project completion. Its underlying discipline is useful for a cost-to-complete report: evidence the remaining work and verify that funds are available to finish it. Your quantity surveyor and contracts determine the actual scope and payment obligations.
Sources: Office of the Comptroller of the Currency: Commercial Real Estate Lending, version 2.0
Build a forecast from non-overlapping components
An invented project has paid 4 million. It also has 3 million of unpaid committed contract amounts, including 0.5 million of certified invoices; the certified amount is part of the 3 million, not an addition. Remaining uncommitted scope is estimated at 1 million, known changes at 0.4 million and unallocated contingency at 0.6 million.
Forecast cost at completion is 9 million. Remaining cash cost is 5 million. These totals exclude financing costs and tax, which need separate funding lines if the report is being used to assess total liquidity.
| Component | Million |
|---|---|
| Paid to date | 4.00 |
| Unpaid commitments, including certified invoices | 3.00 |
| Uncommitted remaining scope | 1.00 |
| Known forecast changes not in commitments | 0.40 |
| Unallocated remaining contingency | 0.60 |
| Forecast cost at completion | 9.00 |
| Cash cost to complete | 5.00 |
Compare the remaining requirement with available sources
Assume the project has 0.8 million of unrestricted cash, 3.2 million of undrawn debt that remains eligible for these costs and 0.7 million of committed equity. Total identified funding is 4.7 million, leaving a 0.3 million gap against the 5 million cost to complete.
Restricted deposits and unapproved loan increases are not equivalent to usable funding. Show them as conditional sources until release or approval is evidenced. Also compare timing: 4.7 million available eventually cannot pay a large invoice due before the lender will advance.
Move risks into the forecast when they become known
When a 0.2 million risk becomes an approved variation, move it from unallocated contingency to the committed or known-change category as appropriate. Do not leave the full contingency and add the variation unless the residual risk assessment justifies an additional allowance. Record the movement so the total forecast change can be explained.
Reconcile each reporting period from previous forecast to current forecast: scope changes, estimate revisions, inflation, contingency transfers and actual outturn. A spend variance can be a timing change rather than a saving. Delayed payment is not evidence that the work will cost less.
Issue a report that supports action
Attach the cost ledger date, contract register, payment status, exclusions and the responsible reviewer. Match the report's scope with the lender's completion definition, including enabling works, utilities, professional fees and statutory conditions where relevant.
The useful output is a dated funding gap with named actions: additional equity, a documented loan amendment, a verified saving or scope change. An unexplained balancing plug labelled contingency release prevents the committee from understanding whether the project can actually finish.
Sources and further reading
- Commercial Real Estate Lending, version 2.0 Office of the Comptroller of the Currency
Published by Feasly. How we prepare our guides. Suggest a correction.
