13.14.13 Builder’s and Sponsor’s Profit and Risk Allowance

A. HUD does not control the division of Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA.)

B. Compute BSPRA without regard to amounts on form HUD-92264, based on a percentage of allowed costs.

1. Use the same percentage (not to exceed 10%) in the Firm Commitment review.

2. Exclude from the computation the cost of off-site work, land, payments for acquisition of leasehold, ground-rent, relocation expenses, supplemental management funds, and Major Moveable Equipment, if applicable.

• C. Apply the 50/75% rule.

1. Whether or not there is an identity of interest, no General Contractor’s fee (general overhead and profit) will be allowed when:

   • More than 50% of the contract sum in the form HUD-92442M, Construction Contract–Cost Plus, is subcontracted to one subcontractor, material supplier, or equipment lessor; or

• 75% or more of the contract sum in form HUD-92442M is subcontracted with three or less subcontractors, material suppliers, and equipment lessors.

NOTE: If two or more subcontractors have any common ownership, they are considered as one subcontractor.

2. The 50/75% rule is not applicable to:

   • Manufacturers of Industrialized Housing.

• Trade items performed by persons on the General Contractor’s payroll.

• The Supplemental Loan program.

  • Rehabilitation programs other than substantial rehabilitation.

3. The Cost Analyst determines the applicability of the 50/75% rule.

4. Where the 50/75% rule is violated, the General Contractor forfeits its profit and only Sponsor’s Profit Risk Allowance (SPRA) is allowed.

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Chapter 13 Cost Certification 13.15 Review of Contractor’s Cost Certification

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• D. Where there is no identity of interest between the Borrower and builder, or when the 50/75% rule has been violated, compute an SPRA which is 10% of the allowable:

1. Architectural fees,

2. Carrying charges and financing, and

3. Legal, organization, and audit expenses.

• E. If an identity of interest between the Borrower and General Contractor is established after initial endorsement and exists at the time of substantial completion, BSPRA is allowed in lieu of a builder’s profit and SPRA.

F. If an identity of interest no longer exists between the Borrower and builder prior to the substantial completion date, substitute SPRA for BSPRA.

1. The construction contract may be amended to permit a typical builder’s profit.

2. Treat the difference between BSPRA and the combination of SPRA and builder’s profit as a direct mortgage reduction on form HUD-92580.