Change orders and construction loan availability

A change can be necessary, approved by the owner and still unfunded by the lender. Track scope authorization, contractor pricing, loan eligibility and actual payment as separate states. The funding decision depends on the revised cost to complete and accepted sources, not simply on whether a change-order document has been signed.

The AIA A102 instructions identify fee adjustments, allowances and assumptions that can affect contract amounts. The OCC construction monitoring discussion addresses remaining funding and cost changes. The ledger below uses hypothetical approvals and does not interpret a real contract.

Start with remaining funding, not original contingency

Assume $2 million of loan commitment remains undrawn and $300,000 of borrower cash is committed and available for the project. Forecast unpaid cost to complete is $2.1 million, including existing approved scope. Before new changes, remaining sources exceed forecast uses by $200,000.

The original contingency may have been larger, but only uncommitted and usable amounts matter now. If the $300,000 borrower cash is needed for another obligation, it cannot remain fully available in this calculation.

Track three changes across four states

Forecast additional cost is $360,000, so total remaining uses become $2.46 million. Existing remaining sources are $2.3 million, leaving a $160,000 gap. The pending utility cost is included in the forecast because it is a supported expected obligation, while its approval status remains visible.

Do not exclude a probable required cost merely because the final change order is unsigned. Conversely, do not claim it is legally owed without the appropriate contract review. The forecast and the legal commitment register can differ, provided the difference is explained.

Distinguish reallocation from a commitment increase

The lender’s acceptance of Change A within existing budget capacity does not add $120,000 to the loan commitment. It permits a use of funds already included in the $2 million remaining source. Adding another $120,000 to sources would understate the gap.

Suppose the lender separately approves a $100,000 commitment increase after review. Undrawn debt availability becomes $2.1 million, total sources $2.4 million and the gap falls to $60,000. The increase is a new source only when actually effective and available under its conditions.

The $90,000 ineligible finish upgrade must be funded from borrower resources under the hypothetical terms. It does not necessarily add $90,000 on top of the calculated $60,000 gap if the existing $300,000 borrower cash already covers part of the total uses. The full sources-and-uses model determines the additional contribution; the eligibility schedule determines which source can pay each cost.

Reconcile payment without making the gap disappear

If Change A is paid with a $120,000 loan advance, undrawn debt availability falls from $2.1 million to $1.98 million and remaining unpaid cost falls from $2.46 million to $2.34 million. The draw increases funded principal by $120,000. With $300,000 borrower cash still available, the $60,000 gap remains: $2.34 million uses less $2.28 million sources.

A draw pays an obligation; it does not cure an overall funding deficiency unless it brings in a genuinely additional source or changes the remaining uses. This invariant is useful for checking a ledger after every material payment.

If the utility’s final price falls from $150,000 to $110,000, remaining cost declines by $40,000 and the gap falls from $60,000 to $20,000. Record the supported price revision and approval; do not treat a hoped-for saving as established funding.

Include time and nonconstruction consequences

A change can add interest, insurance, site supervision, tenant concessions or other carrying costs outside the construction line. If a two-month delay adds $25,000 per month of identified nonduplicated carry, add $50,000 to the forecast and identify its funding eligibility. The revised $20,000 gap would become $70,000 under that assumption.

Do not add carry already included in the revised contractor price or interest reserve forecast a second time. Each consequence needs a cost ID, period and source.

Close the ledger with accountable decisions

For every change, retain scope, reason, price basis, contract approval, lender decision, budget transfer or increase, payment evidence and remaining obligation. Identify who can authorize each action. An owner’s approval cannot waive lender conditions, and a lender’s funding approval does not replace the owner’s contract review.

The completed register should show current and forecast costs, usable sources and the exact additional equity needed. It turns change-order administration into a funding decision that remains consistent as approvals, prices and payments evolve.