Capital Projects: Adding Value with Construction Auditing
Why Project Controls and Construction Audits Add to a Project's
Success and Save Money
Presented by CSI Senior Manager, Dr. Sidney J. Hymes
CCA, CCM, CCP, CFCC, PMP
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Construction Project Lifecycle
Conceptual development
Planning and design
Construction (execution)
Closeout (wrap‐up)
Commissioning
Acceptance
Punchlist completed
May include claims resolution and/or litigation
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Stages of a Capital Project
Stage What happens
1. AppraisalThe needs are identified, the broad parameters
of a solution are agreed, and a decision-in- principle is made to proceed.
2. PlanningThe needs are quantified and assumptions
verified, the desired outputs are specified, and the solution is designed.
3. Implementation The solution is constructed.
4. Post-project review
An assessment is carried out of how successfully the delivered solution addresses
the needs.
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DesignC
onst
ruct
ion
Acoustical ceilingsArchitectural
woodworkBlock and brick
Building insulation
Carpeting
Casework
Cleaning
Clearing & stripping
Compressors and fan units
Control wiring
DemolitionDoors and
frames
Drywall
Ductwork
Electrical Elevators
Erosion control
Fencing
Fire protection
Fire stopping
FlagpolesFlashing
& sheet metal
FlooringFood service
Glass & Glazing
Grading & excavation
Hardware
Insulation
Landscaping andPlanning
Lockers
MechanicalMetal
fabrications Metal wall& roofing panels
Millwork
Moisture protection
Mold Control
Networkwiring
Ornamental Iron
Painting
Paving
Plumbing
Pools and fountains
RO water
Roof and sitedrainage
Roof hatches
Roofing
Rough framing
Sealants &caulking
Security systemsSignage
Site sprinklers
Skylights
Soil treatment
Striping
Structural steel
Stucco
Termite control
Tile
Toilet compartment& accessories
Vacuum systems
Wall covering
Window covering
Window wallWindow,Glass & glazing
Architect of record
Design architect
Mechanical engineers
Structuralengineer
Electrical engineer
Sanitary engineer
Civilengineer
Food serviceconsultant
Audio Visual consultant
Telecommunicationsconsultant
Graphics and signage consultant
Network cablingconsultant
Acousticalconsultant
Hardwareconsultant
Lighting consultant
Testing andInspection
Code consultant
Life Safetyconsultant
Concrete Supply
Counter topsConcrete reinforcement
Building specialties
Concrete formwork
CM
CM
CM
CM
Design
ConstructionConstruction
Sub-subManufacturerSupplier
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Supplier
SupplierToilet compartments& accessoriesCompressors and
fan unitsConcrete
reinforcementArchitectural
woodworkRoughframing
MetalfabricationsSignageVacuum
systems
Buildingspecilaties Hauling
Roof and sitedrainage
Grading &excavation
Metalfabrications
LockersMoistureprotection
Striping StuccoWall
coverings
Concretesupply
Doors andframes
Hardware RO waterCountertops
Food service Glass & glazingFencingSecuritysystems
Soiltreatment
Structuralsteel
CleaningCarpeting Ductwork FlooringLandscapingand planting
MechanicalInsulation
Sealants &caulking
SkylightsWindowwall
Block andbrick
FirestoppingControlwiring Flagpoles
Networkwiring
Metal wall &roofing panels
Pools andfountainsMillwork Site
sprinklersTermitecontrol
Windowcoverings
Buildinginsulation ElevatorsTile
Roofhatches
PlumbingMoldcontrol
OverheaddoorsDemolition Concrete
formworkFlashing &sheet metal
Windows, glass &glazing
Telecommunications consultant
Audio Visualconsultant
MechanicalEngineer
Electricalengineer
Testing andInspection
Life Safetyconsultant
Civil engineer Graphics andsignage
consultant
Designarchitect Network
cablingconsultant
CodeconsultantSystemQuality
ControlScheduleControl
ConstructionAgent
UsersUsers
Users
Users
Users
Users
Users
Users
Acousticalconsultant
Sanitaryengineer
Food serviceconsultant
Securityconsultant
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Administrators
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ContractingCost Control
Structuralengineer
Architect ofrecord
AcousticalConsultant
Hardwareconsultant Lighting
consultant
Contruction
Erosioncontrol
OrnamentalIron Paving RoofingAcoustical
ceilings Casework Drywall ElectricalFire
protectionPaintingClearing &
stripping
GeneralContractor
City Planning
EPA
Chamber of Commerce
DepartmentStreets &Highways
Beautification Commission
Unions
OSHA
Fire Marshall
Public Works
Street and Highways
ADA
EPA
HistoricalPreservation
M e d ia
Agency
At what step can the most money be saved on a Capital Project?
Ask yourself this question:
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Cost‐Planning vs. Cost Control
The planning of capital costs or ‘Cost Planning’
as it is more commonly known can be defined as a system
of integrating cost‐based intelligence into the design process.
Cost control can be defined as the management of the costs associated with the design process (in each
cost holding category) to achieve a predefined approved capital budget.
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Project Controls Activities
Activities may include:
Monitoring and tracking payments
Schedule maintenance
Budgeting and forecasting
Managing change orders
Updating estimates
Document management
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Cost control is dependent on two key factors:Information and Action
In order to have successful cost control, it is essential to have the necessary information and to take
appropriate action based on that information. If the relevant information is not available or if the required
action is inefficiently executed, then the risk to cost control on a project is raised considerably.
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Keep This in Mind
Value Engineering is Different from Cost CuttingVE takes the whole life cycle into account
Cost Cutting generally results from a change in the SOW
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Large project > $250,000,000
Project Controls Manager Master Scheduler Junior Scheduler Cost Engineer Document Control Lead Document Control Admin Project Coordinator
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Mid‐size project = $50,000,000
Master Scheduler Part time Cost Engineer Document Control Clerk Project Coordinator
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Small projects =$5,000,000
Part time Master Scheduler Part time Cost Engineer Part time Document Control Clerk Project Coordinator
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Critical Success Factors
1. The quality of the Statement of Work and detailed budget
2. Deciding on a clear procurement strategy3. Utilize Competent Cost Estimators and Cost Engineers4. Creating a detailed and clear list of assumptions and
exclusions (See number 1 above)5. Clear procedures for risk management and change
management6. Project Management Plan (design and tender process
stages)
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Sample Project Risks
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Business Case Project Delivery OperationalRight ProjectRight LocationInterest RatesLegislativeDemand / Availability Market
SafetyQualityCostTime
Owner ExpectationsFuture ExpansionObsolescenceMaintenanceAvailabilityWhole Life CostsDefects
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Are you confident that change orders are being priced appropriately on your projects and that you’re not
buying the contractor a yacht?
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Let this be someone else’s problem
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Myths and Misconceptions
Change orders are separate contracts
Change orders are inherently bad and should be avoided
Establishing the budget/contract terms prior to design completion is always to the Owner's benefit
That lump‐sum competitive bids always result in the lowest construction cost
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Construction Audit Purposes
Identify and mitigate risks, both financial and non‐financial
Provide verification of processes, procedures and expenditures
Are existing policies sufficient?
Validate project management methodology
Determine if the project manager is managing subcontractors
appropriately
Verify contract compliance
Provide opportunities for improvement
Provide independent project controls oversight
Review compliance with procurement policies
Adequacy of payment substantiation and documentation
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Construction Audit Benefits
Benefits of performing a construction audit:
Identify losses occurring in the course of the project's lifecycle,
often in excess of the cost of the auditing process
Identify areas for improvement and prevent future losses
Acting on the contractual audit clause, visit GC's office and
verify records, a process not generally performed by or
available to the Project Controls staff
Identification of questionable or fraudulent activities
Recommendations for strengthened and improved procedures
Validate compliance by third‐party project controls provider
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Benefits of Early Engagement
When the construction auditor is brought into the project early, additional benefits may include:
Improved procurement procedures, enhancements to existing systems including document management
Identification of unrealistic expectations and poor scope definition, the most frequently‐cited cause for project failure
in every discipline
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Why a Construction Audit by Construction Auditors
• Conventional Audit is Often Too Superficial
• Construction Auditors are Specialists with Construction Knowledge
• Construction Auditors have the Ability to Understand the Contract in Context
• Construction Auditors Conduct Data Analysis in the Proper Perspective
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Selecting an Auditor
You should expect:
Auditors with extensive knowledge of the construction process who are aware of nuances in
construction billings and accounting practices
A written methodology plan which includes a timeline. Be wary of providers who promise results
in unreasonably short time periods (e.g., 1‐2 weeks)
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Red Flags When InterviewingBe concerned of:
Auditors who work on a contingent fee basis may not provide the most objective results
That claim the error rate in payment submissions is very high (+/‐
50%)
That a construction audit for a large project can be accomplished in a matter of days
If you are interested in realizing true savings on your construction projects while enhancing your ability to control risk, ... In less than 30 minutes, we'll assess your
overall project and estimate the ROI a construction audit can provide.
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1 – 2%1 – 3%20%50%Savings attainable
typically 3 to 5 multiples
of the review costs
Potential savings?
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Methodology Highlights
Identify and review existing internal procedures and processes
Review contract documents including contract, general conditions, procurement and risk management plans
Interviews with project management and stakeholders
Identify and sample relevant documentation
Measure existing policies against best practices
Provide findings and recommendations
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• Construction audit cost USD $500,000
• Audit return=0.001%• Would it be worthwhile?• Recovery: USD $2,000,000• Portfolio size = USD $2.5Bn
Time for a Test
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The compression of time and spending during large projects creates an
urgency that few in management truly appreciate. Truthfully,
resistance to construction auditing has been fostered by auditors who
have imposed traditional auditing methods on dynamic projects. The
rapid pace at which most projects are prosecuted will not allow for
business as usual ‐
the laborious completion of audit programs,
multiple management discussions, and reporting cycles of 90 days
or
more. Effective construction auditing detects, analyzes, and reports
cost issues before they are set in concrete, doing so through the
application of simplified reporting, proactive contract administration,
contractor involvement, and assignment of experienced construction
auditing personnel.A.M. Gray
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Wrapping Up
Project Controls and Construction Auditing are complimentary, not contradictory
Construction audits, at the client's request, can provide insight and oversight across a broad spectrum of project activities
Construction entails risk and risk can be managed
Construction audits can identify opportunities for improvement
Being independent from the project, construction auditors can provide objectivity
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Thank you for joining our webinar Q&A
For questions, please contact: Roderick Saper, [email protected]