5.12.3 Allowances and Fees

A. Allowances and fees are reported on forms HUD-92326 and HUD-92264 as lump-sum dollar amounts but should be supported with itemized cost schedules attached to these forms. Allowances and fees include:

1. General Requirements (Job Overhead). Covers project-specific overhead and construction staging expenses. Include:

   • Supervision and jobsite engineering;

• Onsite job office expenses directly related to the project including clerical wages;

• Temporary buildings, tool sheds, shops, and toilets,

• Temporary heat, water, light and power for construction;

• Temporary walkways, fences, roads, siding and docking facilities, sidewalk and street rental;

  • Construction equipment rental not included in trade item costs;

• Cleanup and disposal of construction debris not included in trade or sub-contract costs;

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Medical and first aid supplies and temporary facilities;

• Security guard wages and related costs;

• Theft and vandalism insurance. (does not include Builders Risk Insurance);

• Builders Risk Insurance. Builders Risk Insurance is separate from any theft and vandalism insurance policy provided by the General Contractor. While Builders Risk Insurance may be placed by either the General Contractor or the Borrower, it is common industry practice for the contractor to place the policy, with the contractor named as Insured, and the Borrower named as “Other Insured.” Regardless of which party is responsible for payment, the Borrower must always be named as an Insured party, as per Builder’s Risk Insurance requirements in form HUD-92447, Property Insurance Requirements.

• When the contractor pays for the policy, the premium may be included in the General Requirements or the contractor’s Other Fees. When the Borrower pays for the policy, the insurance premium is included under Insurance online G-55, Insurance, of Form HUD92264.

• Salaries for site visits by owners, partners, or officers of the general contracting firm are included in General Overhead, except for payment for work done on the job by these individuals in a trade capacity, as laborers or supervisors.

2. General Overhead. Covers contractor’s home office or principal office and general business expenses. The amount is fixed at up to two percent of the sum of Total Land Improvements, Total Structures, and General Requirements.

3. Builder’s Profit or Fee. Builder’s Profit or Fee is calculated as a percentage of the sum of Total Land Improvements, Total Structures, and General Requirements. The percentage amount is determined by the nature and location of the project and market conditions and should be compared to the amount of the fee negotiated between the Borrower and contractor for reasonableness. When the General Contractor is an independent third party (no identity of interest with the Borrower or Sponsor), the Builder’s Profit or Fee is an actual cost that must be paid to the General Contractor. This applies to all non-identity of interest General Contractors participating in any of HUD’s mortgage insurance programs. When the General Contractor has an identity of interest with the Borrower, see paragraphs “d” and “e” below.

4. Development fees in Value Based Programs - Sections 231 Substantial Rehabilitation and 223(f). Except for certain affordable housing transactions, development fees payable to affiliates of the Borrower (i.e., identity of interest participants) are not mortgageable costs and should not be included in the cost estimate. A reasonable and customary general contractor fees and costs payable to unaffiliated third parties are eligible. (See Appendix 3, Section A.3.2 for treatment of fees in certain affordable housing transactions.).

5. Architect’s Fees. The source of this cost is the Owner-Architect Agreement, (see Section 5.3.4). If there are multiple prime agreements (e.g., separate Design Architect and Supervisory Architect), total all fees in line G 45 of form HUD-92264 and itemize in Section O, Remarks. The Lender’s Construction Analyst should copy the fee amounts, unaltered, to the cost estimate. The Construction Analyst should document Architect’s fees and compare with existing fee data to determine reasonableness. The Construction Analyst should inform the Lender’s Underwriter if fees are significantly different from the data range, but the fees should not be altered on the cost estimate without a prior meeting

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between the Lender, Lender’s Construction Analyst, Borrower, and Project Architect. For new construction and substantial rehabilitation applications, fees should be documented as a percentage of the sum of Total Land Improvements, Total Structures, General Requirements, General Overhead, and Builder’s Profit. The Architect’s Fee usually consists of a design fee to cover the cost of the preparation of all construction documents (working drawings and specifications) up to the start of construction; it typically represents 75 to 80 percent of the total fee. The Architectural Supervision fee covers the cost of the Project Architect’s construction inspections, reports, and preparation of change order requests; it typically represents 20 to 25% of the total fee.

6. Bond Premium . This covers the cost of Payment/Performance Bonds used to ensure completion of construction in event of a default by the General Contractor. The bonding or surety company determines the premium or cost based on its perception of risk in light of the contractor’s financial capacity and performance history and the nature of the work. The Letter of Credit Fee can be mortgaged if the Developer is using a letter of credit for assurance of completion instead of bond.

7. Other Fees. Costs of various required items and services can vary greatly among jurisdictions and localities. Other Fees can be paid either by the Borrower or the General Contractor. The Borrower should submit an itemized list of all project-related Other Fees as an aid to the Construction Analyst. Other Fees paid by the General Contractor should be entered in form HUD-2328. Owner’s Other Fees entered into form HUD-92264, Section G include the General Contractor’s Other Fees amounts. Other Fees include:

   • Site and topographic surveys;

• Subsurface exploration (test borings);

• Soil tests, concrete tests, and other construction testing;

• Fees for utility taps and connections;

• Impact fees for public infrastructure;

  • Building permits and licenses;

• General Contractor’s cost certification audit fee (if required). NOTE: The Borrower’s cost certification audit fee is not to be included in Other Fees since it is recorded separately in Line G. 66 of form HUD-92264; and

  • Builders Risk Insurance, which may be included with general Requirements or Contractor’s other fees (only if paid for by General Contractor).

8. Furniture, Fixtures, and Equipment (FF&E) . This category includes substantial indoor and outdoor furniture and equipment (e.g., trash dumpsters, pool or recreational equipment, permanent lobby or reception area furnishings, golf carts). It may not include titled vehicles, minor items of relatively insignificant cost such as furniture accessories, rental unit furnishings, hand tools and hand power tools, or expendable items. An itemized schedule of FF&E with cost for each item will be submitted with the cost documents and reviewed by the Lender’s Construction Analyst for acceptability. Costs may include only delivery and placement of the item. The dollar amount of FF&E will be reported in line G.60 of form HUD-92264; “AMPO percent (nonprofit only)” will be lined out and substituted with “FF&E”.

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