Managing finances effectively is crucial to ensuring a construction project’s success. The construction bank requisition process is a key aspect of financial management as it allows for the organized and efficient disbursement of funds. This guide will help you understand how to streamline the process to prepare comprehensive construction bank requisitions and improve the overall transparency and efficiency of your finance and accounting function.

What is a construction bank requisition?

A construction bank requisition is a formal request for funds to be released by a bank or lender for construction-related expenses. It includes detailed documentation to justify the release of funds and ensures that the project stays financially on track. By including soft costs, hard costs, and change orders, you can provide a clear and transparent financial picture to your lender.

Additionally, it is essential to develop a detailed construction draw schedule to indicate the timeline and specific milestones for when funds will be requested and disbursed. This helps in planning the cash flow needed for the project, ensuring that funds are available when required for different phases of a construction project.

Step-by-step guide to preparing a construction bank requisition

Step 1: Gather required documentation

Before submitting a requisition, it is important to gather all necessary documents to support the request:

• Construction contract: Outlines the scope, payment terms, timelines, and other essential details.
• Detailed project budget: A comprehensive breakdown of all anticipated costs, including materials, labor, permits, and fees.
• Invoices and receipts: Proof of expenses incurred, such as itemized invoices and receipts.
• Progress reports and inspection certificates: Verifies that work is completed according to standards and project timeline.
• Lien waivers: Legal documents from contractors and suppliers waiving their right to file a lien.
• Change orders: Approved modifications to the original project plan.
• Documentation for soft costs: Includes architectural fees, permits, legal fees, financing costs, insurance, and project management fees.
• Documentation for hard costs: Includes labor, materials, equipment, and subcontractor payments.
• Vendor compliance check: Ensure all vendors and contractors meet compliance requirements, including licenses, insurance, and bonding. This step verifies that all parties involved are qualified and legally permitted to work on the project.

Step 2: Complete the requisition form

Obtain and accurately complete the requisition form from your bank or lender. Include the following information:

• Header information: Date, project name, project address, borrower's name, and loan number.
• Details of requested funds: Description of completed work, amount requested, and supporting documentation.
• Change orders: Document any approved changes that impact the scope of work and budget.
• Soft and hard costs: Clearly separate and document what are the hard costs and the soft costs of the project.

Step 3: Compare to the budget

Compare the requested amount with the original project budget, showing any variances and their reasons. Adjust for change orders and categorize costs into soft and hard costs for a comprehensive financial overview.

Managing costs and change orders

• Keep detailed records: Maintain comprehensive records of all soft costs, hard costs, and change orders.
• Communicate effectively: Ensure all stakeholders are informed about changes and their financial impacts.
• Review regularly: Regularly update the project budget to account for changes and ensure accurate requisitions.

Leveraging software and technology

Modern technology can significantly enhance the efficiency and accuracy of the construction bank requisition process. Project management software, accounting tools, document management systems, compliance management tools, specialized construction draw, and loan management software can all streamline the process, improve communication, ensure compliance, and provide real-time tracking and centralized data management.

By leveraging modern software and technology and incorporating soft costs, hard costs, and change orders into your construction bank requisition process, you create a transparent and efficient financial management system that keeps your project on track and within budget. Simplify your construction financing and achieve project success with a well-prepared requisition.

For more information on managing the costs of a construction project, please reach out to a member of our Construction Industry Practice, Faye Huang at fhuang@citrincooperman.com, or Managing Partner of the Business Process Outsourcing Practice, Mike Zyborowicz.