The Truth About Funds Administration ft. Nolen Tuttle of Upside Guarantee

So Nolan, if you would, just to kick us off, tell our listeners what funds administration actually is.

Yeah, of course.

It is a third-party financial monitoring service on construction projects for the purpose of reducing risk.

The real core mechanic around funds administration is the controlled disbursement account.

So we open a bank account on behalf of the contractor on a construction project.

The account is in their name and their tax ID, so they own the funds in it, but we are the only ones that have access to it.

So we administer the funds on that project for the purpose of ensuring that those funds are used on the project itself and not on a different project, and in a certain order of priority.

So we're always going to pay vendors first, the subcontractors, suppliers, anyone with a payment claim, to make sure that they're paid currently and correctly, right, to mitigate the surety bond risk, the payment risk.

And then we will calculate the overhead and, of course, reimburse our client for their labor and any direct costs that they've incurred on the project, and then we'll calculate their overhead and profit that they've earned based on a percentage of completion calculation.

So that is the core mechanic behind it.

And of course, at the same time, we are monitoring their project budget.

We're asking for their job cost breakdown, and we're calculating each draw against that breakdown and seeing how they're tracking.

Is the job cost breakdown accurate? Are we looking like we're burning cash a little faster than we thought? Is their profit margin sustaining or is it shrinking a little bit? What are the risks on this, and how is it tracking against what we thought would happen at the beginning of the project? So that we can highlight some risks in real time for the surety.

We give monthly reports that are quite thorough.

We probably give underwriters more than they wanna see.

I laugh all the time, like, we send them these very detailed emails.

I hope that they read them.

I'm sure that they do.

But it's a lot of information, and the goal for us is just transparency.

The benefit is to have us on the project in partnership with the contractor, monitoring these things and making sure that the surety knows at any given time how the project's going.