Feasibility Study of construction project in compliance with Bank Investment Supervision requirements

On the basis of the 12-year author’s practice of Bank Investment Supervision developed methodology significant construction projects risks have been identified and measured: risks of the highest impact values and risks of the biggest likelihood appearance. The research has been recorded in 400 – 450 reports of 42 investment projects in advanced manufacturing, commercial, residential, hotels and apartment housing sectors. At least one risk of the highest measured level of significance has been highlighted at each phase of investment process: design, construction and maintenance. A reasonable level of risks significance has been determined which stands for not more than 1/3 of possible significance in “risks monitoring” strategy. Engineering, Project and Construction Management (EPCM) approach to investment process and solid, consequent, regular construction projects monitoring executed by professional Banking Supervision Inspector (BSI) make possible to minimise any faults of inappropriate financing of construction projects.


Introduction
The Bank Investment Supervision / Project Monitoring services stand for monitoring of a construction project in terms of risks that may occur [1,2,3] as well as the financial schedule of all works, in order to evaluate the progress of the works in respect of the loan drawdown provisions.
The scope of the services includes:  Preparation of Initial Report;  Preparation of Monthly Reports;  Preparation of Final Report.
The main parties involved in carrying out the construction project are:  Bank / Lender -Financial Institutions considering a grant of an investment loan to finance the objective investment Project;  Investor / Borrower -Economic entity, acting under the jurisdiction of the laws of Poland which intends to begin the investment Project;  Engineer / Project Monitor -Company providing services of technical supervision on behalf of Financial Consortium, prepared to undertake monitoring of the progress of works during the investment.

Bank Investment Supervision Executive Summary
The positive assessment of development of the Commercial Centre Project of area 33.500 m 2 located in Western Poland has been presented as an example of multi-criteria assessment undergone by a professionally experienced Bank Supervision Inspector in a period 2011-12 which was a prerequisite for the financing of the Project out of credit funds.

Assessment of Project Development for Financing and Implementation
In order to assess the readiness of the Construction Project in question for financing and implementation, the Employer provided the Banking Supervision Inspector (BSI) with the Project documents required for the Inception Report preparation. Below there is an example list of BSI's most significant comments on the Construction Project development and implementation and as well as recommendations to be followed before the financing of the Project by the Bank started. The project implementation key aspects have been formulated in the most comprehensive and transparent table executive  summary table format pinpointing:  Comments -important Project facts presented for the attention of the Bank and the Investor;  Recommendations -significant Projects defects that must be removed or improved by the following Project assessment as not arise cumulative Project risks.  It should be ensured that the construction works are performed based on the approved detailed design, and in particular in compliance with the valid building permit decisions;  After the Project has been implemented, service supply/reception agreements need to be concluded with the service suppliers to the satisfaction of the technical conditions obtained. 3 Organisational Structure of the Project Comments:

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The organisational structure generated defines the relationships among, and the competences and role of, the Construction Project stakeholders to the degree that is sufficient for a reasonable implementation of, and accounting for, the Project;

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The establishing of the post of Project Manager by the Employer ensures that the Project will be managed comprehensively, in particular that its three key elements: circulation of Project documents, a work plan and a critical path as well as costs together with the identification of additional and substitute work will be controlled.

Construction Works Contract
Comments:

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The Contract properly defines all the basic activities to be taken by investment process stakeholders under the Polish Building Law;

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The structure of the Contract ensures that the Construction Project can be managed efficiently and that basic project requirements such as time for/date of completion -quality/implementation standardprice/payment for work can be met;

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The interim dates appointed for the handing over of business establishments to tenants ensure the possibility of making interior decorations in the establishments before the dates of planned official inspections that are No.

Project implementation key aspects Comments and Recommendations
to be carried out as part of the commissioning procedure;

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The Employer commissioned directly a nominated Subcontractor to do demolition work, piling and preparatory work, including land reclamation, under a separate contract. The contract work has been completed and accounted for. Recommendations:  BSI requires that the statements to be made by the General Contractor in future include the names of the subcontractors that have provided services for both of the Joint Venture firms and also the provision that it has no overdue financial obligations towards subcontractors under the contracts for implementation of the Project in question;

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The items of the Unit Price  It is recommended that the Construction Schedule be expanded to a feasible level by allowing for the time that will be taken by the occupancy permit procedure and by taking into consideration the milestones referred to in the Contract;

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Relations among individual Project events should be identified and the critical path determined in order to trace deviations from the path while the Project is being implemented and to assess risks to meeting the deadline;

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The Construction Schedule should be made consistent with the General Contractor's Report so that the physical work progress and the progress in accounting for works expenditure can be revised. 9 Payment Plan Recommendation:

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The advances paid by the Employer on the construction works to be done should be accounted for in a final invoice. BSI notes that the projected value of the final invoice is lower that the sum of the advances paid. Therefore the parties should settle their accounts well in advance.

Environmental Issues
Comments:

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The environmental requirements of the consent to the implementation of the Project issued are satisfied in the Building Permit Design and this is accepted without any comments or reservations;

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The Employer should take into consideration the fact that it may be placed under an obligation to follow the environmental impact assessment procedure for the second time while the building permit amendment procedure planned is being followed. No.

Land Surveying and Environmental Analyses
Comments:  After the revision of the Project documents and the soil investigation results, it is to be stated that the design solutions adopted are correct for this type of facility, the existing soil conditions and the given geotechnical category;

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In the light of the Investor's submitted results of soil and water specimen tests carried out in a laboratory BSI states that the reclamation process upgraded the land in question to the group B quality standards.

Project Budget
Comments:

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The Project Budget given in tabular form is presented as a clear breakdown by cost categories;

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The Project Budget reflects the up-to-date market indices for construction services, construction-related services as far as the major items budgeted are concerned, and it is estimated correctly; however, if the Project is to be implemented within the Budget, strict financial discipline needs to be applied, as mentioned above (i.e. the costs generated by additional and substitute works need to be minimised);  BSI notes that should the cost category limits budgeted be exceeded, the Investor is to take into account the option of using budgetary contingency which have been underestimated compared to the up-to-date market indices.  BSI requests the Investor that monthly reports on the Centre commercialisation should be submitted.

Final recommendations on Construction Project Feasibility
As a result of deep recognition and documented investigation undergone within a process of a Bank Investment Supervision the following final recommendations have been drawn and presented to the Bank for the Project positive financing release: a. The Construction Project has been implemented correctly so far from the technical, legislative and financial aspects; b. The Construction Project is sufficiently developed for implementation as far as its technical / design and legislative / formal aspects are concerned, however its safe implementation will require that partial costs and interim dates must be specifically controlled; c. The Construction Project is feasible within the assumed budget but BSI points out the identified risks to the Project in question presented in Table 1 in the form of comments on the present state and recommendations to be followed in future.

Bank and Bank Investment Supervision risks identification
On the basis of approach outlined above the following Bank Investment Supervision risks have been identified:  risks of the highest impact values  risks of the biggest likelihood appearance measured and reported by BSI to the Bank. All data have been collected and converted as a result of [2,3]:  30-year experience of an author's construction project management  12-year practice of Bank Investment Services, documented in 400 -450 BSI reports of 42 construction projects of advanced manufacturing, commercial, residential, hotels and apartment housing sectors. Entire group of risks has been divided into 3 groups equivalent to 3 phases of investment process:  phase of projects preparation and design works -A  phase of projects construction and erection -B  phase of projects maintenance and exploitation -C for which the most significant risks have been determined [4,5,6,7]