Why Lenders Need Construction Technical Advisors to Mitigate Project Risks
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January 22, 2026
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Lenders rely on independent technical advisors to assess risk at two critical junctures during the lifecycle of a capital project: prior to a financial investment decision and during the project when the borrower requests financial draws. These advisors provide essential and comprehensive guidance on project feasibility, accuracy of borrower representations, risk assessment and performance monitoring that directly impacts financial decisions and draw approvals.
If the technical advisors engaged by a lender lack hands-on experience in project delivery, it can create a dangerous blind spot precisely where significant financial risks often materialize. Technical specialists may excel at evaluating design concepts but miss critical delivery risks in detailed design, procurement, logistics, and construction, resulting in unachievable baselines. Without execution expertise, advisors may struggle to accurately identify early warning signs of schedule delays and cost overruns and rely too heavily on the information provided by borrowers and their contractors.
To address this gap, lenders may need to consider a different advisor profile or a multi-advisor model with complementary expertise aligned to specific project phases and technical domains, from design and operations to construction and project delivery.
FTI Consulting recently supported lenders and their counsel to evaluate the health of an underperforming mining project in Latin America. The lenders’ technical advisor, who had strong mining experience but limited construction expertise, certified unachievable budgets and schedules and failed to identify major cost overruns and schedule delays.
FTI’s initial due diligence review discovered that progress was signifcantly overstated and the remaining cost and schedule grossly understated. FTI recommended a comprehensive project re-baselining and assignment of a new engineering, procurement and construction management (“EPCM”) contractor and, through hands-on guidance, established a credible, execution plan, cost estimate and schedule for the remaining work. The project was unable to secure additional funding, resulting in a near-total loss to lenders.
Key Risk Areas That Are Frequently Underassessed
Baseline Establishment Gaps – Overly optimistic or incomplete baselines and execution plans are the most frequent root causes of project cost and schedule overruns. Unrealistic cost budgets and hyper-aggressive schedules can create a false impression of achievability that quickly erodes once execution begins. Typical risk areas can include the following:
- Misalignment between the technical basis, cost estimates, schedule, and delivery and commercial strategies
- Misclassification of estimate accuracy and under-evaluation of execution cost and schedule risks
- Unrealistic productivity and indirect construction cost assumptions that don't account for project-specific conditions
- Arbitrary cost and schedule targets to secure project approval and/or funding
- Approval to proceed granted without an appropriate level of definition of execution readiness
Execution Data Reliability – Cost estimates frequently understate direct and indirect labor hours and productivity challenges, particularly in remote locations or tight labor markets. These flawed estimates can lead to significant cost increases during execution, which can be further exacerbated by schedule delay. Risk areas can include the following:
- Historical data based on previous estimates from studies rather than executed work
- Limited industry and regional benchmarking against actual construction performance metrics
- Historical and benchmarking data with insufficient details on quantities and labor productivity
- Overreliance on borrower and/or contractor-provided information without independent and qualified verification
Contingency Evaluation Shortfalls – Projects with seemingly adequate contingencies (10-15%) can quickly exhaust these reserves when construction begins if the reserves were calculated based primarily on technical rather than execution risks. The greatest cost and schedule risks often appear after construction begins. Areas of concern include the following:
- Misclassification of estimate accuracy, leading to inadequate contingency provisions
- Excessive focus on technical, operational and production risks while failing to identify or underweighting construction risks
- Insufficient consideration of factors affecting labor costs, productivity, materials and equipment
- Misperceptions of risk allocation based on commercial strategies
Interface Management Challenges – Design changes, material delivery delays and construction challenges can create cascading cost and schedule impacts that weren’t identified in initial risk assessments. Typically, these delays are forecast to be absorbed by testing and commissioning, resulting in late surprises. Risk areas to watch can include the following:
- Poor coordination among detailed design, procurement, construction and commissioning
- Inadequate assessment of handover requirements between phases
- Insufficient attention to commissioning and startup requirements and time during design and construction
Best Practices for Lender Technical Advisor Selection
To help ensure comprehensive risk assessment and project monitoring, when considering a technical advisor, lenders should:
- Evaluate the advisor’s credentials specifically for detailed design, procurement and construction execution experience
- Request examples of previous construction monitoring engagements and their outcomes
- Assess the advisor's ability to independently verify borrower representations of project performance
- Ensure the advisory team includes professionals with hands-on EPC management experience
- Verify the advisor's capability to evaluate technical, commercial and execution risks
- Consider a multi-advisor approach for complex projects, with specialists engaged at different project phases by technical domain
- Establish clear coordination protocols when multiple advisors are involved to ensure integrated risk assessment
Get the Technical Advisory Services You Deserve
Lenders understand that capital projects inherently carry risk. However, with timely, accurate and independent assessments, they can make informed decisions to minimize that risk. By selecting technical advisors with construction expertise, lenders can significantly improve their visibility of risk and protect their investments throughout the project lifecycle.
As projects grow in complexity and face increasing market pressures, the traditional single-advisor model may no longer provide adequate coverage across all project phases and technical domains. A strategic approach that matches advisor expertise to project stage, while maintaining coordination, could offer lenders the comprehensive risk management they need and deserve.
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Published
January 22, 2026
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