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With Construction, the Devil’s in the Details… and the Paperwork

Most of the risk during construction projects comes not from performance issues, but instead from payment issues. Funds Control and Disbursement can help combat this risk.

By Joseph Bonin | Updated on August 21, 2012

Most of the risk during construction projects comes not from performance issues, but instead from payment issues.  As with most of us, general contractors are great at doing their jobs – in their case, construction – but are not necessarily adept at the paperwork or accounting side of the construction equation.  Historically, 80-85% of construction defaults are due to errors in payments and/or funds disbursement.  Specifically, the money is not getting distributed to the people who are performing most of the duties on a construction project – the subcontractors and suppliers.   Many factors can contribute to this problem:  poor management; accounting or paperwork errors; comingling of funds between projects (not a sound business practice); and, yes, although admittedly rare, even through the intentional diversion of funds. 

Over the past several years, a solution to this problem has evolved in the construction lending industry.  Construction Risk Management has become a commonly accepted outsource tool for managing the risk of construction lending by a 3rd party risk management firm.  One service within the Construction Risk Management toolkit is Funds Control and Disbursement, which allows for a much greater level of oversight, management, and control of the general contractor’s monthly draw request and payment process.   

What is Funds Control and Disbursement?

Essentially, Funds Control and Disbursement encompasses all of the activities necessary to manage the pay application and disbursement process. 

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