Construction Audit: A Self-Funded Approach to Recovering Over-Billed Costs While Ensuring Contract Compliance

One of the largest capital expenditures a company can incur is through the expansion of an organization’s overall footprint. Whether this involves the development of new offices, warehouses, or production/manufacturing facilities, every construction project, regardless of size or type, is subject to sizable financial commitments and significant risk.

Initially, after zeroing in on the overall desired goals of your construction project, the General Contractor (GC) selection process begins and typically entails extended discovery and vetting processes. The GC’s role is to ensure that the job is properly scoped, costs and assumptions are fully vetted and a concrete plan for the project is agreed upon. However, once an extensive project is underway, the reliance on the GC to manage the overall project without oversight is not always practical and can often pose a considerable amount of risk for the Client. These risks can be classified as both financial and non-financial and are typically related to cost overruns, subcontracting decisions and various bond and insurance requirements.

To mitigate these risks, third-party oversight almost always proves beneficial to ensure that proper monitoring is in place to best manage complex projects and also to avoid financial leakage. Whether this oversight is deployed in advance, during or following the project, Clearview Group is poised to assist your organization through the full life cycle of the construction process by implementing a comprehensive Construction Audit program that possesses the following strategies:

Program Assessment

Our consultants will work with you to identify all risks that may be associated with your upcoming or current construction project through a program assessment while leveraging Clearview Group’s proprietary Construction Audit methodology. Through this assessment, project management processes are reviewed and detailed in order to identify any potential high-risk areas that may affect the overall job. Holding more than a decade of experience in the Construction Audit space, our team will work with the GC’s job specific Project Manager (PM) to provide valuable insights and identify any gaps against best practices that may mitigate any financial or non-financial project related liabilities. These insights help to clearly define responsibilities, recognize significant risk areas, align appropriate controls and ensure the success of any current and future projects. Additionally, we can identify any contract gaps to ensure template agreements are in line with industry best practices and provide you with a framework moving forward.

Cost Recovery

Due to the high number of transactions and complexity of accounting in construction projects, cost overruns and financial leakage are not uncommon occurrences in the construction landscape. These unexpected and incurred costs result when non-allowable costs are included on invoices, potential duplicate payments are processed, unauthorized travel or per diems are submitted or undisclosed mark-ups and/or costs have been misclassified. Change orders specifically account for a large portion of this financial leakage and are very prevalent in large-scale construction projects as general contractors may attempt to inflate overall costs and fees associated with the project, or convince the client their original intentions are outside of the scope of the initial agreement. Work resulting from a change order can significantly alter the original contract amounts and are frequently inaccurate and can include base contract redundancies.

Through our thorough Construction Audit, Clearview will provide in-depth analysis of costs billed to the project against contract terms and conditions to identify issues either prior to or following final invoicing. The timing of the audit can either reduce liabilities on upcoming invoices or help to recover amounts previously paid. Our cost recovery portion of our program works on a contingent fee basis, therefore, if Clearview doesn’t identify any overpayments from vendors owed back to you, there is no cost.

Ongoing Monitoring

Clearview Group’s comprehensive Construction Audit process can be completed simultaneously with the construction timeline and throughout completion. An ongoing monitoring process provides the ability to further assess critical areas of risk that include cost allocations, change order implementation, material substitutions and project payments. This monitoring provides notice to the GC that project specifics will be monitored throughout the duration of the project for compliance and often leads to more accurate record keeping and monitoring by the GC.

How Has Clearview Group Provided Value to A Previous Construction Audit Client?

Clearview Group’s specialists were engaged by a recent Client to perform a Construction Audit of their long-standing GC for a project that had experienced large project overruns. Our team was able to identify billing exceptions and secure cost savings totaling $1 million in all areas of the project including over-billed labor, per diems, incorrect taxes, and incorrect fee calculation. Our team also identified key terms and conditions that were not included in our Client’s master agreement template and provide suggestions for improvement in alignment with industry best practices.

Final Thoughts

While a significant amount of high-level monitoring is done through a dedicated PM on behalf of the GC, an outsourced audit partner may be paramount to ensure one of your biggest investments is completed to your expectations and within or better than budgeted. An on-going audit program can provide a breadth of opportunities from both a financial and operational perspective. Having a streamlined, efficient approach for identifying and monitoring areas of risk through the construction project process allows for increased focus on other strategic initiatives that support long-term success.

For more information on our comprehensive Construction Audit services, contact Clearview Group.