Section 5001.205 - [Effective until 11/29/2024] General project monitoring requirementsIn complying with the requirements of this section, the lender may rely on written materials and other reports provided by an independent engineer and other qualified consultants.
(a)Design requirements. The lender must ensure that all facilities constructed with guaranteed loan funds are:(1) Designed using accepted architectural, engineering, and design practices, taking into consideration any Agency comments when the facility is being designed;(2) Designed in conformance to applicable Federal, Tribal, State, and local codes and requirements; and(3) Constructed to support operations at the level and quality contemplated by the borrower using accepted architectural and engineering practices.(b)Rights-of-ways, easements, and property rights. The lender is responsible for ensuring that the borrower has:(1) Obtained valid, continuous, and adequate rights-of-way and easements needed for the construction, operation, and maintenance of a project; and(2) Obtained and recorded such releases, consents, or subordinations to such property rights from holders of outstanding liens or other instruments as may be necessary for the construction, operation, and maintenance of the project and to provide the required security.(c)Permits, agreements, and licenses. It is the lender's responsibility to ensure the borrower obtains all permits, agreements, and licenses that are applicable to the project.(d)Insurance. It is the lender's responsibility to ensure the borrower obtains and maintains borrower and project insurance in substance and amount similar to that ordinarily required by lenders in the industry.(e)Construction monitoring requirements. The lender, or its designated agent, will monitor the progress of construction of the project and undertake the reviews and inspections necessary to ensure that construction conforms to applicable Federal, Tribal, State, and local code requirements and that construction proceeds in accordance with the plans, specifications, and contract documents. (1)Construction inspections. The lender must notify the Agency of any scheduled field inspections during construction. The Agency may attend any field inspections the lender may conduct. Any Agency inspection, including those with the lender, are for the benefit of the Agency only (and not for the benefit of other parties in interest) and do not relieve any parties of interest of their responsibilities to conduct necessary inspections. (i) On a case-by-case basis in the event that the Agency determines that there is additional risk to the government, the Agency may require the use of a qualified, independent inspector to inspect construction to ensure the project is being adequately built to meet the borrower's requirements of the borrower's approved project and comply with all applicable codes and legal requirements.(2)Issuance of loan note guarantee prior to completion of the project's construction. Except for projects utilizing non-proven technologies, the lender may request that the loan note guarantee be issued prior to completion of a project's construction. The lender's request will be considered by the Agency, who may require credit risk mitigation. An additional fee for issuance of the loan note guarantee prior to completion of the project's construction will be assessed in accordance with § 5001.454(c) in subpart E. The lender must verify and include evidence of the following in its request:(i) The promissory note specifying the full term of the note and containing the terms and conditions of each draw period;(ii) The borrower and lender have entered into a contract with an independent disbursement and monitoring firm with a construction monitoring plan acceptable to and approved by the Agency or, the lender documents that they have the capacity and experience to disburse funds and provides a monitoring plan acceptable to the Agency;(iii) The borrower and lender have agreed to a detailed timetable for the project with a corresponding budget of costs setting forth the parties responsible for payment. The timetable and budget will be confirmed as adequate for the planned development by a qualified independent consultant (e.g., the project architect or engineer) with demonstrated experience relating to the project's industry.(iv) The borrower has entered into a firm, fixed-price construction contract with an independent general contractor with costs outlined in detail and terms specifying change order approvals, the agreed retainage percentage, and the disbursement schedule;(v) Evidence the lender has properly vetted the financial feasibility and past performance of the contractor to show they are able to complete the project or that the lender has mitigated risk in the event the project is never completed, such as requiring a 100-percent performance/payment bond on the borrower's contractor to be maintained until the contractor is released from its obligation. The bonding agent must be listed on Treasury Circular 570;(vi) Evidence, which the Agency at its sole discretion determines is satisfactory, that the lender has completed the due diligence necessary to confirm that the contractor is able to complete the project based on information including but not limited to the financial statements and past performance of the contractor;(vii) When applicable, the borrower has entered into a contract with an independent technology development firm guaranteeing the following: Completion of the project with the necessary technology to successfully run the project and system performance for projects that utilize integrated processing equipment and systems, such as biorefineries, renewable energy systems, and chemical manufacturing plants. The credit underwriting of the independent technology development firm must be satisfactory to and approved by the Agency; and;(viii) Evidence, in form and substance satisfactory to the Agency, that there is sufficient contingency funding in place to handle unforeseen cost overruns without seeking additional guaranteed assistance.(f)Reporting during construction. Regardless of when the loan note guarantee is issued, all lenders must report any problems in project development to the Agency within 15 calendar days of identifying the problem. If the loan note guarantee has been issued prior to construction or completion of the project, the lender must provide monthly construction reports that contain: (1) Certifications for each draw request as follows:(i) Certification by the independent engineer or qualified consultant to the Lender that the work referred to in the draw has been successfully completed; and(ii) Certification by the borrower and independent engineer or qualified consultant that the guaranteed loan funds of the prior draw have been applied to eligible project costs in accordance with the draw request and that the contractors have delivered mechanics lien waivers in connection with such draw;(3) Details regarding the borrower's equity, other funds, and guaranteed loan funds disbursed to date;(4) Status of construction; and(5) Inspection reports; and(6) Concerns, potential problems, cost overruns, etc.(g)Use of guaranteed loan funds. The lender must ensure that: (1) All borrower funds are utilized prior to guaranteed loan funds;(2) Guaranteed loan funds are only used for eligible project costs in accordance with the purposes approved by the Agency in the conditional commitment and in accordance with the plans, specifications, and contract documents; and(3) The project will be completed within the approved budget.(h)Project completion. Once construction of the project is completed, the lender must obtain and have on file all mechanics lien waivers or releases from all contractors and materialmen. The lender will provide to the Agency: (1) A copy of the notice of completion or similar document issued by the relevant jurisdiction;(2) Certification that all funds were used for authorized purposes; and(3) A written certification that the project will be used for its intended purpose and will meet the borrower's needs and guaranteed loan purposes in accordance with the application approved by the Agency.(4) RES or EEI projects and projects that utilize integrated processing systems and equipment, such as biorefineries, renewable energy systems, and chemical manufacturing facilities, unless utilizing the provisions of paragraph (e)(2) of this section, must be constructed, installed, and operated as described in the technical report or on the vendor certification prior to disbursement of guaranteed loan funds. For RES, the system must be operating at the steady state operating level described in the technical report or on the vendor certification for a period of not less than 30 calendar days, unless this requirement is modified by the Agency, prior to disbursement of funds.85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70357, Dec. 10, 2021 85 FR 42518, 10/1/2020; as amended at 85 FR 62197, 10/2/2020; 86 FR 70357, 12/10/2021