A lender cost plan review is not an attempt to produce a competing estimate. It is an assessment of whether the borrower's budget is structured in a way that lets it be tested, tracked and relied on.
A plan that cannot be interrogated is not evidence, however close its total eventually turns out to be.
Is it built from measurement or from rates
The first question. A plan built from an area schedule and applied rates is a starting point; one built from measured scope is a budget. Both have their place, and the stage the scheme has reached determines which is appropriate.
What matters is that the document says which it is. A rate based plan presented as though it were measured is the failure to look for.
Where rates have been used, ask what they were based on and when. A rate from a project completed three years ago, uninflated, is not a current price.
Are the site costs separated
Abnormals, substructure, external works, infrastructure, utilities and statutory obligations should each sit outside the building rate and carry their own value and assumption.
Where they are folded into a rate per square metre, the plan has averaged away the items most likely to move, and the ones least predictable from floor area.
This is the single most common structural weakness in developer cost plans, and it is covered in pricing site abnormals before you buy the land.
Is inflation stated to a date
An inflation allowance should carry a base date, an assumed start on site and an assumed duration. Without those the allowance cannot be checked or updated, and it will silently become wrong when the programme moves.
Ask whether the contract is fixed price or carries fluctuations, because that determines who holds the risk after tender.
A long programme with no stated inflation basis is a specific finding rather than a general concern.
Is the risk allowance a register or a percentage
A percentage tells a credit team nothing about the scheme in front of them. A register of named items with values can be examined, tested and tracked as risks retire.
Ask whether the contingency is client held or sits inside the contractor's price, because only the first is a defence for the lender.
The full treatment is in contingency adequacy from the lender's side.
What sits outside the construction figure
Professional fees, surveys, statutory payments, utilities, finance costs, marketing and disposal costs, and the client's own costs. On a development these are a substantial share of the total.
A construction cost plan excluding them is not wrong; a plan that does not say it excludes them is misleading, and an appraisal built on it will be short.
Ask specifically for the development cost rather than the construction cost, reconciled to each other.
The answers that should worry you
A single line for external works. A round percentage contingency with no register. No inflation basis stated. Provisional sums with no schedule showing which are defined. A total that has not changed since the scheme was materially redesigned.
None of these prove the budget is wrong. All of them mean it cannot be tested, which for lending purposes amounts to the same thing.
Where several appear together, the useful response is to condition first drawdown on the plan being restructured rather than to argue about the total. The pattern when that is not done is described in hidden cost exposure.
What this means for you
Test structure before total. A well structured plan that turns out to be optimistic can be managed, because every movement is traceable. A poorly structured plan that happens to be close cannot.
Then condition what you need while you still have leverage, which is before the first advance. Our scope sits under development monitoring surveying.
Need a borrower's budget tested before you commit?
Send the cost plan and the supporting documents. We will report on structure, assumptions and adequacy.