What every ambitious Contractor should know about the Requisition Cycle

Hannah Franklin Quality Control

What is a requisition?

In Construction, the monthly requisition is the lifeline for Subcontractors, and Construction Managers.  It is that time of the month, no, not that one, but the one when Subcontractors submit a claim for payment based on work completed, or nearly completed, and materials procured during that months’ time.  

 

The Requisition Process

Subcontractors have the opportunity to submit their monthly requisition by a designated date of each month.  The requisition is then reviewed by the Project Manager.  They may provide initial markups or comments.  The Project Accountant will also review and compile all requisitions from all Subcontractors for a monthly review with Ownership and often, a representative from their funding source (i.e. the bank is here).  This review is typically a combination of a site walk and then a “pencil requisition” review.  The pencil requisition is a draft, if you will.  It provides all parties (CM, Owner, Bank, Architect) the opportunity to review, adjust and agree on what the final requisition submitted will be.  The final requisition is submitted to Ownership and/or their Bank for funding.  Typically, the funds are released to the Construction Management firm, and then in turn, the Construction Management firm pays Subcontractors.  The timeline of these payments is determined by contract agreements. Due to the number of parties involved in the requisition process, terms are typically net 45 – net 60.  

 

Expectations for Requisitions

Expectations for a successful requisition

Now that we have a baseline understanding of the requisition process, let’s get into how a Subcontractor can have a successful requisition, month over month.  The first step is to understand the requisition requirements and terms for the project.  These may vary project to project.  It is critical to know what back up documentation is required, what payment terms are, and what percentage of completed work they will accept for payment.  

Next, you need to get your systems set up to be able to properly comply with the requisition requirements each month.  Do you have all the photos and paperwork for material stored?  Does the Construction Management firm require they visit the storage facility prior to requisition?  Are all required proof of insurance up to date?  

Finally, you need to be accurate and timely with your reporting.  Submit your requisition earlier than the monthly due date to ensure it gets a proper review.  If you are one of the 5 other guys submitting their requisition at 11:59pm on the due date, you’ll get less attention, and be taken less seriously.  Double, triple check that you have all backup paperwork included.

 

Meat and Potatoes

This is all great for the process of preparing and submitting your requisition, but what’s the meat and potatoes behind the requisition?

The way you run your business on a daily basis will impact your requisition.  Let’s start with an example.  For building ABC, you are contractually obligated to complete 2 floors per week of your trade work. That’s 8 floors a month.  It’s requisition time and you have completed 4 floors for the month.  Would you pay you for 8 floors when you’ve only delivered 4?  Not likely.  And not likely any CM will either.  Let’s look at this example another way.  You’ve completed 8 of 8 floors that month.  The construction manager has flagged issues with installed work on multiple floors which now require rework that has not yet started, and the crews keep installing incorrectly.  Are you going to successfully put in the requisition to get paid for all 8 floors?  Once again, not likely.

Now you’ve staffed the project for a month, can’t get that time back, and can’t get paid for incomplete or insufficient work.  This has a negative impact on your cash flow, because of poor planning and/or management of field staff and progress.  

It is also worth noting, that not only will requisitions be docked (values reduced), but often payment will be withheld until certain non-conforming work is rectified.  Daily operations are CRITICAL.

In all things, the results you get are as designed by the process you follow.  

 

Hannah Franklin

Quality Management’s Role in Requisitions

To me, the most concise and all-encompassing definition of Quality Management is from Investopedia.com.  It is; “Quality management is the act of overseeing all activities and tasks that must be accomplished to maintain a desired level of excellence.  Quality management focuses on long-term goals through the implementation of short-term initiatives.”

Focusing on long-term goals through implementing short-term initiatives is the golden ticket to accomplishing successful requisitions every month.  Successful requisitions every month add up to a successful, profitable project.

In order to get a fully paid requisition each month, it is imperative that systems are reverse engineered from the desired goal.  You must answer the question, “what do we have to do this month to get a fully paid requisition?”.  Then, you design your processes to get you the result you want.  Full payment, every month.

 

Author

  • Hannah Franklin has worked in new construction real estate development for over 10 years in New York City on projects with budgets ranging from $100-$550 million. She focuses her work on quality management through business process improvement, cross-functional team management, product value engineering, streamlining operations, quality control and quality assurance, impeccable customer service, contract management, and schedule and budget management. Hannah is passionate about organization, streamlining and efficiency. hannah@loopconsultinggroup.com

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