How Construction Audits Create a Win/Win Relationship
Construction project owners and contractors can save time, money and effort by investing in professional construction audit services to strengthen financial controls and ensure contract terms are met for the project.
In a Construction Today blog post, Brown Smith Wallace real estate advisory expert Bill Willbrand, CPA, CCA, CCP discusses how each party can benefit from a construction audit. Willbrand is a new contributor to the blog and will regularly offer his construction insights.
Construction audits can benefit both the project owner and the construction contractor by establishing oversight of the project and defining expectations of all parties, particularly if done from the outset.
While the construction manager and owner’s representative look at the financial aspects of the project, their roles differ from that of an auditor. For instance, the construction manager is focused on the project, the schedule, the contractors and construction methods. He or she often focuses on financials, but does so from the contractor’s point of view.
If an owner’s representative is involved, this person tends to focus on managing construction resources, advising the owner on construction methods and procedures, and assuring adherence to the architect’s plan and schedule. He or she also reviews the contractor’s payment request to determine if it’s reasonable.
What the auditor brings is a focus on strengthening financial controls over the process and adherence to contract terms. These audits keep all parties on the same page, fine tuning various aspects of contract compliance, addressing potential issues before they become major project hurdles. In addition, a well-managed and monitored project reduces conflicts, speeding the closeout process and decreasing the likelihood of costly, time consuming litigation for all parties.
The Project Owner’s Perspective
Project owners benefit from construction audits because the results of the process typically enhance their return on investment, increase cost savings and lower their risk. That’s because these independent audits give them some additional financial controls around one of their largest capital expenditures, which project investors value to make sure their money is being spent wisely.
Early involvement yields more savings than a stand-alone, closeout audit. Having an experienced construction auditor involved in the contract stage can often provide increased savings through cost avoidance. Bringing an auditor in during the contract stage will also help you define your risk and rights under the contract.
With a construction audit, the auditor looks at contract terms, identifies overcharges, suggests how to better manage risks and examines your control procedures to make sure they’re functioning properly. This independent review examines financial transactions to ensure compliance with contracts and works with the owner’s representative to manage the whole process. The auditor looks at the project cost structure, which includes subcontractor costs, purchase order costs, and relationships between contractors and contract compliance.
The Construction Contractor’s Perspective
The construction company often benefits from the audit as well. A construction audit assures the contractor that the financial piece of the project is being well managed and monitored, which strengthens the relationship between the business owner and the construction company. For instance, for one major contractor, we examine projects for them across the country because they want to know where the financial holes are before their customers do. For them it is about exceeding the customers’ expectations.
When these audits are performed, costs are verified and the cost structure is reviewed. This can significantly shorten the closeout period, the time from when the project is substantially completed until the contractor receives final payment. A shorter closeout period saves the contractor (and the project owner) significant time, money and effort.
Bill Willbrand is partner in charge of Brown Smith Wallace’s real estate advisory services and construction practices. He has over 25 years of experience serving clients in the construction and real estate industries. He can be reached at firstname.lastname@example.org, or 636.754.0200.
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