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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5

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

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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

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Users

Users

Users

Acousticalconsultant

Sanitaryengineer

Food serviceconsultant

Securityconsultant

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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, Partnerrsaper@controlsolutions.com