Construction Auditing: F.A.Q.'s
Q: We have a Project Manager and an Architect who thoroughly review every pay application and change order before it goes to our Accounting Department for their review. Do I still need your services?
A: Absolutely! Every construction project needs thorough management and proper administration throughout the project life cycle, i.e., the process you outlined above. One of the most important components in the construction cycle though, is the close out audit that should be performed at the general contractor’s office upon the completion of every project. The GC is the only person with all the information showing what was actually spent on the project. The documentation submitted to you during the project is often times an estimate.
Q: Most of our projects are bid or lump sum contracts. Do we still need to audit?
A: Definitely. First, when you say “bid”, make sure you don’t mean that there is a G-Max, which is often construed as a bid, since costs can not exceed a certain amount. A Cost Plus contract with a G-Max is the type of contract that has the most exposure (from an audit perspective) and that can yield the highest audit results. If your contract is a lump sum, were there any change orders? While the opportunities may be limited on the audit of the base scope of the project, more than likely there are opportunities for recovery in the change orders. One of our national clients does mostly lump sum contracts, but insists we audit every project with over $150k in change orders. The bottom line is this; we will thoroughly review every page of your construction contract to find all the opportunities for recovery, whatever they may be. If we find nothing, then our fee is $0, but you still gain the knowledge that you were billed correctly.
Q: Are there any other areas you find recoveries on bid or lump sum projects?
A: Yes. We always ensure all of your alternates and allowances are reconciled. Also, we verify that there were no deductive change orders to the subs that were not properly passed on to the owner. This can only be seen from the GC’s office. Additionally, we have found double billings on change orders from the Subs to the GC, which were charged to the owner. In this instance, the GC is able to get reimbursement from the Sub and then pass it through to the owner. Also, when applicable, we thoroughly review all sales tax charges to ensure their accuracy. On a bid job, if an incorrect sales tax number was used to determine the contract amount, then the GC would need to issue a deductive change order to reflect the proper cost using the appropriate sales tax amount.
Q: What is the best time for the audit?
A: Assuming a thorough audit has not been ongoing throughout the life cycle of the project, the best time for the final audit is after you have received the final application for payment AND while you are still holding the retainage. This gives you increased leverage for quick resolutions.
Q: How many years back can an audit be performed on a project we already completed?
A: The standard AIA contract used widely in the industry typically provides audit rights on projects that have been completed in the last 3 years.
Q: I trust my GC and he is my friend. Won’t he be upset if I audit?
A: Most construction contracts have audit rights in them; and these are the same contracts your GC’s use on an every day basis. Accordingly, they are very aware of your audit rights and have likely been audited in the past. In fact, some of the larger GC’s actually have “audit rooms” in their corporate offices. When someone is spending the amount of money that is typically spent on a construction project, GC’s expect that a responsible owner will be watching its funds closely.
Q: I’m still a little worried that the audit may bother the GC…..
A: We require very little of your GC’s time during the audit and again, you are simply exercising a right granted to you in the contract that was executed by your GC. Your GC fully knows about the audit provision in his contracts. Also, have you ever questioned your GC on a pay application, change order, or maybe even found a mistake during your review of the costs? I suspect your answer is yes. That is exactly what we do, except we are experts in this field and we know exactly where to look and what to ask. Essentially, we do the same thing you do, except we do this everyday. We bring our expertise, experience, and industry knowledge to the table for you, when we go to the GC’s office to look at the actual costs. Therefore, our audits are really just an extension of what you have been doing throughout the construction process.
Q: We have done a number of projects with a contractor and we trust him, but as part of our “Best Practices” initiative, we want to perform a preliminary review of some of the projects from our offices, prior to deciding if we want to move forward with a full audit. Will you do this?
A: Absolutely. Often our construction audit process starts at our clients’ offices, where we perform reviews of their contracts and files in an effort to make recommendations as to possible opportunities. This is a very good way to start, since potential audits can be prioritized.
Q: We are very busy and don’t have much time to allocate to you for an audit. Is this OK?
A: Definitely. We require very little of your staff’s time. You can be involved to whatever extent you desire, while we move the process along with your approval.
Q: What do we need to get started?
A: We need to execute an engagement letter and then we need copies of your Contract, addendums, letter agreements, etc., and your final application for payment. Everything else we can get while we are at the GC’s office.
Q: How long does an audit take?
A: It depends on the size and scope of the project and type of contract. However, on most audits, we will send one or two team members to the GC’s office, and they will be there from three to five days. Of course, we will spend time prior to that preparing for the audit. Assuming the GC has all information available for the audit and we do not have to wait for anything, our construction audit team should have a preliminary report available for your review within about a week. As you can imagine, there are volumes of contracts and paperwork that we review to extrapolate the information necessary to identify ALL possible overcharges. We thoroughly review every page of your contract to ensure we are finding every opportunity to save you money.
Q: In your audit results, do you just find everything possible that might be construed as an overcharge and “throw it against the wall to see if it will stick?
A: Absolutely Not! There may be some firm’s that take that approach, but not ours. We would not be in business as long as we have been with the clients we have if we used this approach. Our top priority is maintaining the relationship you have with your GC; and using the approach outlined in your question is definitely not in the best interests of you or your GC. Our construction audit findings are very solid and every one of them has supporting documentation for you to review. Remember, our standard practice is that YOU must agree with all of our findings before they will be submitted to your GC for his comments.
Q: What if for whatever reason we don’t agree with one or more of the findings identified in your audit report?
A: Again, our clients call all the shots throughout our risk free audit process. If you want something out of the construction audit report, simply tell us and we’ll remove it. It’s that easy.
Q: What if for whatever reason we decide not to pursue ANY of your audit findings?
A: Again, that is your sole prerogative. Our services are absolutely risk free. However, we do ask that if you know of a reason on the front end that may cause you to walk away from our findings that you reevaluate your need for our services.
Q: Will we owe you a fee if we walk away from some or all of your audit findings?
A: No. Our objective is to provide you with solutions to your problems and actual verifiable results. If you don’t receive consideration for our services, we do not get paid. It is that simple.
Q: If we agree with all your Construction Audit findings, what is the next step?
A: The Construction Audit report will be forwarded to the GC for his review and comments. If the GC agrees to all of our findings, then we are done and hope to help you with your next project. If there are areas that the GC believes need further review, we will assist you every step of the way to whatever extent you want. Often, we draft every letter from our clients to the GC during the settlement process. We are experts at positioning, negotiating, and settling our findings in the most beneficial way possible. Our interests are exactly aligned with yours.
Q: How often do your audits result in litigation?
A: Very very rarely. Again, our Construction Audit findings are supported by your contract; therefore, there is a governing agreement in place that defines the allowable actions of the parties. We work within those parameters. If attorneys were to get involved, it would be your business decision.
Q: This all just seems too good to be true! How can you make all these guarantees?
A: We have been in business using these exact same guarantees since 1996. We firmly believe that we should only be paid when we provide solutions and results. Our objective is not to come in and do something you can do yourself; it is to provide you with a niche expertise and a value-added service that is uniquely designed to meet the needs of anyone building a construction project.
Q: Are there any limits to where you will travel to perform audits?
A: No. We travel all over the U.S. and have done audits in Canada and Puerto Rico, also.
Q: How can we get started?
A: Please contact us today so our Construction Audit experts can explain more about our risk free services. By utilizing our team, at the very least, you will gain peace of mind knowing that you were billed correctly; but more than likely, you will realize a significant savings right to your bottom line. We are very busy, so please call us at your earliest convenience, so we can start scheduling your Construction Audit now.