Construction Cost Control and Audit


Instructor:   Richard L. Townsend                  

About Our Construction Courses

We have been presenting owner-oriented courses on construction cost control and audit since 1985.  The need for construction cost training was driven home by huge cost overruns on construction projects.  Owners funded projects without fully appreciating the overcharge exposures.  These expenditures were often outside the mainstream of the organization and sometimes not well-controlled.  Even on well-controlled projects costs can escalate.  Utilities, retailers, energy companies, real estate developers, manufacturers and others in industry and government saw the benefit of auditing construction costs.  The auditors for these organizations routinely reported overcharges of 1 to 2% of costs.  When projects are out of control, 30-45% overcharge is not unheard of.  Our construction courses are practical, how-to courses, loaded with examples and good practices.

Controlling Construction Costs

In this two-day course, attendees will apply proven techniques to case studies and learn how to ask the right questions and tackle technical matters.  By following the skills learned in Controlling Construction Costs, participants can direct and regulate many aspects of construction activity to ensure that their companies get what they contracted and paid for.

Learn how to:

  • Prevent and detect construction overcharges
  • More effectively administer construction contracts
  • Plan your construction contract strategy to complement your control system to receive the most value for your construction dollar.
  • Strengthen controls to reduce opportunity for fraud, conflicts of interest and kickbacks.

Controlling Construction Costs helps you understand the nature of change orders and contractor claims, and provides approaches to controlling them.  It shows how to impact construction costs through building control considerations into bid documents and contract language.

Introduction to Controlling Construction Costs - an Owner's Perspective

  • Why are we here
  • Examples of what went wrong

Cost Control Objectives

  • Project planning phase
  • Contract document development phase
  • Bid/contract award phase
  • Construction phase
  • Contract closeout phase

A Multi-Step Approach to Effectively Controlling Construction Costs

Cost Control Roles & Responsibilities - The Owner's "Team"

  • Project manager/purchasing authority
  • Field engineer(s)
  • Cost analyst/construction accountant
  • Contract administrator
  • Outside architect/engineer
  • Construction auditor

Preventing and/or Detecting Typical Overcharges in Lump Sum Contracts

  • Specified construction materials or products not installed
  • Specified services not rendered
  • Overstatement of change order proposals
  • Overstatement of contractor claims

Preventing and/or Detecting Typical Overcharges in Cost Plus Contracts

  • Payroll burden overcharges
  • Labor hours and/or wage rates overstated
  • Material overcharges
  • Back charges not properly handled
  • Equipment rental overcharges
  • Equipment purchase overcharges
  • Insurance overcharges
  • Overcharges by subcontractors
  • Accounting errors, duplicate charges, etc.

Bid Document Format and Language to Enhance Cost Controls

  • Non-collusive bidder certification
  • Acknowledgment of owner's business ethics policy
  • Value engineering provisions
  • Overhead markups on changes

General Contract Language/Provisions to Enhance Cost Controls

  • Why tailor your contract
  • Definition of reimbursable costs
  • Address overtime, delays and other impact costs
  • Change order administration

Special Considerations for Time and Material Contracts

  • Establishing proper rates for labor, equipment, etc.
  • Obtaining adequate documentation on a timely basis

Special Considerations for Unit Price Contracts

  • Adequate definition of how units will be measured
  • Monitoring work in-progress/work in-place
  • Accurately determining quantities

Using Computer Database Applications as Park of the Operational Control System for Cost Plus and/or Time and Material Contracts

Special Cost Control Considerations with Change Orders to Lump-Sum or Guaranteed-Maximum Contracts

  • Field administration of changes
  • Obtaining proper documentation
  • Special contract provisions
  • Monitoring change order work
  • Analyzing/auditing change orders

Special Cost Control Considerations with Contractor "Claims"

  • General claims
  • Differing site condition claims

Effective Auditing of Construction Activity

Effective auditing of construction activity is one of the biggest challenges facing auditors today.  This two-day seminar provides auditors with the ability to look beyond their traditional auditor role by providing them with insight on how to help their organizations bring construction projects in on-time, within budget, at the desired quality, and at a fair price.

Introduction to Effective Auditing of Construction Activity

  • Audit objectives related to controlling construction costs
  • Project team roles and responsibilities
  • Delivery systems - fast track, design build, conventional
  • Contract procurement methods, types, and phases

Cost Plus and Time and Material Contracts - Typical Overcharges

  • Design contract billings for time and reimbursables
  • Billings for personal computer and/or mainframe computer time
  • Construction contractor and/or construction manager billings for labor and labor burden
  • Billings for contractor-owned equipment, third-party equipment rental, expendable tools, equipment and consumables, and material used during construction
  • Transactions dealing with subcontractors

Auditing Construction Change Orders

  • Typical overcharges in lump sum change orders
  • Mechanical change order - discussion exercise
  • Electrical change order - discussion exercise
  • Change order labor and labor burden pricing

Auditing Lump Sum or Unit Price Contracts

  • Quality and scope of work overcharges
  • Substitution of materials or methods
  • Not performing required services
  • Not installing proper quantities
  • Special types of lump sum contract overcharge situations
  • Adjusting allowances
  • Required bonds and insurance
  • Improper charges for sales tax
  • Special unit price overcharge situations
  • Excessive quantities billed
  • Improper measurement method used
  • Inaccurate measurements
  • Billings for excessive quantities actually performed

Contact us to bring this course in-house.

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