Construction Audits: Case Studies
Construction Audit #1 - Just the mention of a Construction Audit proved beneficial to one Owner. After the Owner notified the General Contractor that we would audit his project, but before we even arrived at his office, the GC issued the Owner a check for $104,540.
Stipulated Sum (Lump Sum) Contracts
Many of our Construction Audits are for projects with a Stipulated Sum Contract. In these cases, typically only costs for Change Orders, Allowances, and Alternates are subject to audit. We have, however, still found significant recoveries based on the ratio of recovery to total Change Orders.
Construction Audit #2 The General Contractor treated all Change Orders as Lump Sum, even though the Contract defined them as Cost Plus. The result was a $121,752 credit due the Owner.
Construction Audit #3 During our thorough Change Order Review Process, we discovered that one of the approved Change Orders was for work that was never performed. This resulted in a $12,900 credit to the Owner.
Construction Audit #4 - The General Contractor included the wrong sales tax in the bid proposal. Even though the Contract was a Stipulated Sum, we were able to identify the associated $11,000 credit due the Owner, and the General Contractor agreed to the credit. In this instance, the sales tax percentage correction was considered a deductive change in scope; and, therefore, the Owner was due a credit.
Construction Audit #5 On one Stipulated Sum Contract audit where Change Orders totaled $297,445, we found $17,800 due the Owner, a 6% recovery. On another audit where Change Orders totaled only $84,911, we found $9,263 due the Owner, more than a 10% recovery. Another audit with Change Orders of $158,872 revealed a $25,581 credit due the Owner, a 16% recovery.
Cost Plus Contracts with or without a G-Max
Construction Audit #6 The GC invoiced the G-Max amount which was $2,139,258. After thoroughly reviewing all project costs, we found that the Owner was over-billed by $227,625, since the allowable costs were less than the G-Max.
Construction Audit #7 The Owner inadvertently made duplicate payments of one Pay Application from the General Contractor in the amount of $214,000. We found correspondence in the GCs files from their accounting department indicating that they were aware of the duplicate payment; however, until our audit, they had said nothing to the Owner.
Construction Audit #8 The Shared Savings split was miscalculated, resulting in an $83,000 credit due the Owner.
Construction Audit #9 Unreconciled Allowances were identified resulting in a $78,214 credit due the Owner.
Construction Audit #10 Total project costs appeared that they had exceeded the G-Max; and accordingly, the G-Max was invoiced. Nevertheless, we found unreconciled Allowances, credits not passed to the Owner, and incorrect Change Order costs. The result was an inflated G-Max of $74,000 due back to the Owner.
Construction Audit #11 One of our clients had been using the same contractor for a few years due to the high quality of work and great level of service they had always received, not to mention the friendships they had developed. However, as a prudent business practice and in an effort to simply review the millions of dollars they were spending, they engaged our services to perform a cursory review at their home office of a number of projects. Our review led to the discovery of a billing error based on contract interpretation that when multiplied over the number of locations that had been constructed, resulted in close to seven figure findings. Based on the significance of the findings identified by our cursory review, our client decided to move forward with the audits and large recoveries were realized.
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