2. IDENTIFYING THE STRENGTHS & WEAKNESSES OF YOUR CONSTUCTION PROJECT McCune Construction Services Group, L.C.C.

3. The 4 major goals of a Successful Construction Project?  Time  Quality  Cost  Safety  Other?

4. Qualifying your Contractor Some things to consider…  Has the Contractor properly evaluated the cost of the project?  Estimating Skills & Resources  Estimate Complete (laps & gaps in the cost estimate)  Comparison to other Bids

5. Qualifying the Contractor  Is the contractor qualified to build the project?  Recent project history (last 3 projects completed) – valid references  Subcontractor & Vendor References  Experience on similar Projects ( not to much emphasis on this )  Processes (review with Contractor its processes for addressing time, quality and cost goals ) Scheduling

6. Qualifying the Contractor  Is the contractor financially prepared to service the project?  Present Workload  Banking references

7. Borrower / Contractors: When the Borrower is acting as its own GC - what steps can you take to qualified a business owner as a General Contractor? Answer: You can’t. Being a General Contractor is NOT a side job – it’s a full time job. It takes constant attention, years of experience, specific types of insurance, relationships with suppliers and subcontractors and a firmly established arsenal of processes (evaluating & manage cost, subcontracting, scheduling, quality control, safety…). To mitigate the risk require the Borrower to included in its construction cost the services of a qualified Construction Manager to manage the TQC and safety goals.

8. Construction Delivery Methods  There is a variety Contracting Methods.  General Contracting  Stipulated Sum or Lump Sum  Cost Plus  Construction Management  Design / Build

9. Stipulated Sum  The Contract Amount is a Lump Sum or Fixed Amount McCune Construction Services Group, L.C.C.

10. Cost Plus  There two basic types of “Cost Plus” contracts  Cost Plus a Fee with a Guaranteed Maximum Price (GMP)  Cost Plus a Fee without a GMP.  IMPORTANT: Ask yourself who is identifying “Cost”.

11. There are all sorts of Construction Contracts. Regardless of the Construction Contract used, in addition to your attorney reviewing, I recommend you retain a construction management professional to review the Contract between the Owner (your borrower) and the Contractor. The terms and language in the Construction Contract can increase your own risk. Construction Contracts (this is NOT legal advice – like with all contracts you should consult with an attorney) AIA Contracts – which may be obtained via www.AIA.org - Documents on Demand.www.AIA.org Other Alternative/Industry Standard Contracts, Custom Contracts and of course verbal contracts.

12. Types & Levels Of Oversight Funds Monitoring & Funds Disbursement In addition to these basic plans, McCune also offers a “Completion Guarantee” option and its “Pro Assurance” plan which we are pleased to discuss with you following the session.

13. Funds Monitoring  Funds Manager schedules a visit to the Project and using the Contractor’s payment application reviews progress.  Compares the actual work performed with the percentages of work requested in the payment application.  Verifies materials suitably stored on site.  Collects lien waivers from the Contractor (only).  Prepares a detailed Progress Review Report for the Lender.  The Lender, not the Funds Manager, disburses the funds to the Contractor. McCune Construction Services Group, L.C.C.

14. Funds Disbursement  Schedules a visit to Project and using the Contractor’s payment application reviews progress.  Compares the actual work performed with the percentages of work requested in the payment application.  Verifies materials suitably stored on site.  Collects invoices, proof of payment and lien waivers from the Contractor, Subs and Vendors listed on the Contractor’s payment application package.  Prepares a detailed Progress Review Report for the Lender.  Funds Manager disburses funds to the General Contractor, the Subcontractors and Vendors.

15. Lien Waiver Management

16. Texas Property Code | Section 52  The Code is an enormously complicated document which is routinely misconstrued and misused.  There is a very defined process for the Subcontractors and Vendors to perfect a Mechanic’s Lien on unpaid services or materials provided.  There are four Lien Waiver forms referenced in the Code McCune Construction Services Group, L.C.C.

17. There are four Lien Waiver forms referenced in the Code.  Conditional Upon Progress Payment  Conditional Upon Final Payment  Unconditional Upon Progress Payment  Unconditional Upon Final Payment

18. There is a very defined process for perfecting a Mechanic’s Lien on property.  Notice to General Contractor  Notice to Owner  File the Lien  Notify the Owner  Notices Must Contain Specific Language and Information  Notices should be sent via Certified Mail McCune Construction Services Group, L.C.C.

19. Most Contractors utilize the AIA G702/G703 Payment Application Forms which are standard in the industry. Sometimes Similar or Custom Forms are used. Regardless, certain information should be (or must be) included with the Contractor’s Payment Application in order for the Funds Manager to sufficient evaluate the value of the Work performed, and as importantly, the value of the Work remaining to be performed. Payment Applications (Draw) McCune Construction Services Group, L.C.C.

20. Information on Payment Application Forms  Original Contract Amount  Approved Charges  Current Contract Amount  Amount of Work Performed  Retained Funds  Work performed less Retainage  Amount Previously Paid  Amount Currently Due  Amount Remaining (Including Retainage) to be paid.  Detailed breakdown of the cost (i.e. a Schedule of Values)  Backup documentation such as copies of stored materials invoices, copies of approved Change Orders, etc… Ask me why a good detailed Schedule of Values is VERY important

21. Backup Documentation Depending on the level of oversight (i.e. Funds Monitoring or Funds Disbursement), and the type of loan being managed, the documentation needed to review and approve the Contractor’s application for payment may be wide ranging. Its important to inform the Contractor pro-actively about documentation needed to review and approve the payment application. For this reason, we recommend conducting a Pre-Construction Conference to discuss exactly what documentation is required. McCune Construction Services Group, L.C.C.

22. The Site Review  Purpose of the Site Review  Qualifications of Site Reviewer  Site Reviewer’s Processes & Tools  Importance of a Scheduled Appointment  Safe Access to all construction & storage areas  Verification of Stored Materials  Changes  Corresponding documentation  Photographic Records

23. Retainage Texas Property Code Requires 10% Retainage be withheld from all amounts due to the General Contractor. McCune Construction Services Group, L.C.C. What is Retainage? Sec. 53.102. PAYMENT SECURED BY RETAINAGE. The retained funds secure the payment of artisans and mechanics who perform labor or service and the payment of other persons who furnish material, material and labor, or specially fabricated material for any contractor, subcontractor, agent, or receiver in the performance of the work.

24. Changes  Changes represent a large percentage of “issues” on Construction Project because they simply are not managed correctly.  When should a Change Order be issued?  ALL Changes should be reviewed and approved by Owner, Lender and when possible design professionals.  Never disburse funds for changes which have not been approved by the Parties, Lender and A&E.  Be as pro-active as possible.  Impact on Cost & Schedule

25. Retainage – cont’d What is the Penalty for not withhold 10% Retainage? Sec. 53.105. OWNER'S LIABILITY FOR FAILURE TO RETAIN. (a) If the owner fails or refuses to comply with this subchapter, the claimants complying with Subchapter C or this subchapter have a lien, at least to the extent of the amount that should have been retained from the original contract under which they are claiming, against the house, building, structure, fixture, or improvement and all of its properties and against the lot or lots of land necessarily connected. (b) The claimants share the lien proportionately in accordance with the preference provided by Section 53.104. English Translation: If the Owner withholds 10% Retainage its limit of liability is all valid liens, up to 10% of the Contract Sum.

26. Project Closeout Affidavit of Completion (must be recorded) All Bills Paid Affidavit FINAL Unconditional Lien Waivers Certificate of Occupancy As-built Survey Surety Release (obtained from Surety) Other documents required by Lender and/or SBA McCune Construction Services Group, L.C.C.

27. Questions and Answers Steve@McCuneCompanies.com Joe@McCuneCompanies.com 1-866-726-2733 McCune Construction Services Group, L.C.C. MALC Booth No. LR-4 (Next to the internet Café)