Construction Project Management and Cost Controls - · PDF fileConstruction Project Management and Cost Controls ... Construction manager at risk ... Project Management to assess %

10/18/2017

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Construction Project Management and Cost Controls

David Luker, CPA

Director – Risk Advisory Services

©2016 RSM US LLP. All Rights Reserved. ©2016 RSM US LLP. All Rights Reserved.

©2016 RSM US LLP. All Rights Reserved.

Agenda

Types of construction agreements

Stipulated sum / fixed price

Construction manager at risk

Monitoring budgets and progress

Pay application review procedures

Key cost controls / supporting documents

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Presenter

RSM US LLPAtlanta, [email protected] + 1 404.751.9091

David Luker

Director, Risk Advisory Services

• 13 years construction audit – financial, internal, compliance, forensic

• Construction final accounting / audit on projects ranging from $1M - $1B

• Litigation support and forensic audits from both Owner and GC perspective

• Process engineering and internal audit for large government and real estate

• Would rather be surfing!


TYPES OF CONSTRUCTION AGREEMENTS


Organization

Owner

A/E

Subconsultants

CM

Subs

Interior / FFE

Owner’s Rep.

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Factors to Consider

Cost / Size

Complexity / Scope

Timing / Schedule

Risk / Responsibility

Owner Resources


Types of Construction Agreements

Fixed Price / Lump Sum

Unit Price

Construction Manager at Risk (CMAR,

CM@Risk)

Design Build


Agreements – Common Provisions

Change Orders

Contingency

Insurance

Payment

Compensation

Self-performance

Liquidated damages

Right to audit

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Agreements – Fixed Price

Very Common

Prototypes

Non-complex / single trade



Design – Bid – Build

Design – Negotiate – Build

Billed on percent complete

Limited review by Accounting

Architect / Owner’s Rep walkthrough

RFQ Design Bid Fixed Price



Benefits

Competitive

Somewhat limits exposure

Risks

Longer overall timeline (non-concurrent w/

design)

Lowball - change orders

Design constructability – change orders

Non-transparent contingency

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Keys to Success

Scope is well defined

Drawings accurate / low change potential

Schedule allows for bidding

Availability of bidders

Project Management to assess % complete

Experience with similar projects


Agreements – CM@R

Large

Complex

Multi-phase


Agreements – CM@R

RFP or RFQ

Billed on actual costs incurred

Architect / Owner’s Rep walkthrough

HEAVY Accounting involvement

Subcontractor Bid Process

RFQ Design Admin

RFQ CM@R

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Agreements – CM@R

Benefits

Guaranteed Maximum Price

Improved schedule

Concurrent design / collaboration

Transparent

Only pay for actual costs, plus fee (see risks)


Agreements – CM@R

Risks

Ambiguous contract language

Incomplete “silent” contract language

Definition of cost of work (home office / bonus)

Requires very detailed Pay App review

Information overload (staff availability / knowledge)

Sub bidding process (buyout tracking)

Change orders and contingency tracking


Agreements – CM@R

Keys to Success

Strong prequalification process (CM and Subs)

Collaboration

Negotiation pre-GMP

Set expectations for documentation early

Document retention

Robust monthly review process

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MONITORING BUDGET & PROGRESS REPORTS


Monthly Reports

Pay Applications

Approval

Rollforward

Supporting cost documentation

Releases of lien

Other supporting schedules


Pay Applications

Approval

Contractor (notarized)

Architect / Engineer

Owner’s Representative

Internal PM

Department director

Accounting / Finance

Executive level

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Pay Applications

Rollforward

Mathematical rollforward from previous

Sequentially numbered

Appropriate dates

Lead-sheets to schedule of values (SOV)

SOV to cover sheet

Recalculation of SOV

Recalculation of fee

Line item transfers


Pay Applications

Supporting Cost Documentation

Supporting logs

Change order log

Contingency log

Subcontractor invoices and lien releases

GC/GR invoices

Labor reports and timesheets

Buyout log

ODP log

Allowance log


Other Supporting Schedules

Schedule compliance reports

As-builts

Affidavits / Certifications

Personnel change notifications

MWBE tracking

Contractor forms

Subcontractor forms / certifications

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Key Controls for Monitoring

Obtain all supporting documentation

Set expectations early

Well-defined roles Architect, Owner’s Rep, Accountant, Controller/CFO, GM

Get it in writing! – Contracting in high risk areas

Review all documentation Agree to support, recalculate (errors)

Appropriate support for actual costs (CM@R) Internal reports, allocations


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Construction Project Management and Cost Controls - · PDF fileConstruction Project Management and Cost Controls ... Construction manager at risk ... Project Management to assess %