Owner’s project control review - Baker .From concept and funding to controls and compliance, Baker Tilly has more than 250 dedicated construction and real estate industry professionals

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  • 2014 Baker Tilly Virchow Krause, LLP

    Owners project control review

  • About Baker Tilly

    > Established in 1931 > One of the top 20 largest accounting and advisory

    firms in the United States according to Accounting Todays 2014 list of Top 100 Firms

    > More than 1,600 professionals > Baker Tilly Virchow Krause, LLP is the largest US

    Baker Tilly International independent member firm > Baker Tilly International is the eighth largest public

    accounting network with representation in more than 137 countries

    > Convenient, seamless resource for worldwide needs

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  • From concept and funding to controls and compliance, Baker Tilly has more than 250 dedicated construction and real estate industry professionals to assist with your facility development project through all stages of the development lifecycle.

    About Baker Tilly

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  • Overview

    Audit activities Change orders Case studies

    EXAMPLE TEX

    Controls by project phase

    Common construction program risks

    Overview of construction program controls Todays topics

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  • Learning objectives

    > Understand construction program control fundamentals > Identify how the project risks change throughout the construction lifecycle > Recognize audit red flags and under performance indicators > Evaluate audit program elements

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  • Construction program controls

    What are construction program controls? > Construction contracts > Documented, implemented policies, and procedures > Designed to mitigate project and program risks > Controls can help organizations:

    Improve project return on investment Prevent realized losses from scope creep Maintain project schedule, avoid preventable project delays Improve communication of pertinent project issues Monitor projects

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  • Construction program controls

    > Contract controls include good definition of terms such as allowable costs right-to-audit change orders self-performed work

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  • Construction program controls

    > Policies and procedures should include controls for all project phases: Pre-construction Construction Post-construction

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  • Construction program controls

    > Policies and procedures should be: Documented in a comprehensive construction program controls manual Detailed to reduce subjectivity in application and practice Distributed to all construction personnel Reviewed regularly for modifications

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  • Construction program controls

    > Actual practices should be monitored and compared to documented controls > Monitoring helps ensure controls are:

    Implemented Adhered to by personnel Functioning as intended Effective

    > Controls that are not implemented, followed, or functioning properly are

    not effective in mitigating risks

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  • Common construction project risks

    > Overcharges > Unwarranted change orders > Scope creep > Construction quality issues > Unauthorized material

    substitutions > Project schedule delays > Abuse of contingency funds > Unrealized credits and

    available discounts > Claims and liens

    > Project scope/requirements exceed funding

    > Poorly defined contract terms and/or program controls

    > Excessive billing rates > Undisclosed related party

    transactions > Inaccurate or insufficient

    project records > Inadequate staffing

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  • Types of construction program controls

    > As the owner, you are ultimately responsible for everything > Detailed program controls to mitigate risks on construction projects are

    crucial to successful capital programs > One way to organize program controls is by project phase

    Pre-construction Construction Post-construction

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  • Pre-construction controls

    Major responsibilities Control examples Design Design completion percentage before

    construction begins Design evaluation procedures

    (feasible, functional) Constructability review requirements Value engineering procedures Preliminary project schedule and

    budget requirements

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  • Pre-construction controls (cont.)

    Major responsibilities Control examples Bid phase Sole source procedures

    Bidder prequalification requirements Standardized RFP templates Bid posting, advertising, distribution Bid analysis requirements

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  • Pre-construction controls (cont.)

    Major responsibilities Control examples Contract awards Define basis of awards

    Required approvals, timing Purchase order procedures

    Contracting process Applicable notices (award, NTP) Standardized contracts Approvals and approval thresholds

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  • Pre-construction controls (cont.)

    Major responsibilities Control examples Regulatory, economic development and business enterprise compliance

    Documentation of regulations applicable to the project

    Project business enterprise requirements (M/W/DBE)

    Compliance (Davis-Bacon, OSHA)

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  • Pre-construction controls (cont.)

    Major responsibilities Control examples Pre-construction work Define cost estimate support

    requirements Determine basis for reimbursement/

    contract types Standardized contract terms and

    conditions

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  • Construction controls

    Major responsibilities Control examples Change order control Change request process and

    standardized forms Cost/pricing analysis requirements Allowed change order cost types Cost and schedule change support

    requirements

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  • Construction controls (cont.)

    Major responsibilities Control examples Schedule management Narrative and approval requirements

    for baseline/active schedules Mandated schedule updates Approval requirements for schedule

    changes Comparison of schedule to actual

    completion Schedule reporting details

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  • Construction controls (cont.)

    Major responsibilities Control examples Cost monitoring PM review of budget/commitment to

    actual Variance communications Invoice approvals Project reporting

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  • Construction controls (cont.)

    Major responsibilities Control examples Safety Project safety requirements

    Distribution of owner requirements Contractor, subcontractor, vendor

    acceptance Compliance with OSHA, other

    applicable regulations Violations and corrective action plans Accident and claim procedures

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  • Construction controls (cont.)

    Major responsibilities Control examples Contract accounting Invoice approvals and approval

    thresholds Subcontract billing requirements Expenditure processing (3-way

    match) Project financial reporting, frequency,

    distribution

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  • Post-construction controls

    Major responsibilities Control examples Physical project closeout Substantial and final completion

    conditions Closeout submittal requirements Delineate walkthroughs and

    responsibilities Punch list monitoring and resolution Contract closeout procedures and

    final reporting

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  • Post-construction controls (cont.)

    Major responsibilities Control examples Liquidated damages/shared savings calculations

    Application of contract provisions Approvals of exceptions Calculation methods Timing of assessment/payments

    Allowance and contingency reconciliation

    Responsible parties Verification of usage compliance Timing of reconciliation

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  • Post-construction controls (cont.)

    Major responsibilities Control examples Accounting project closeout Project capitalization procedures

    Contract reconciliations Final cost audit Accounting system project close

    Warranty management Warranty log requirements Tracking/inspections Claim procedures

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  • Case study #1: Change orders

    Facts > University housing project > GMP contract totaling $100 million > Contractor self-performing carpentry work > SPW was agreed to using lump sum pricing > Contingency fund usage requires owner authorization

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  • Case study #1: Change orders (cont.)

    Key tests > Analyze payment applications to identify line item overages > Compare general conditions percentage complete to overall project completion > Review project change order approvals and test for contract compliance > Examine RFI and change order control schedules to capture and highlight

    duplicate submissions > Assess contingency logs and descriptions of usage

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  • Case study #1: Change orders (cont.)

    Red flags > Contractor billing schedule of values reflects line item overruns

    (negative balance to finish amounts) > Change request using contingency to add funds to general conditions > Duplicate scope of work in change order

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  • Case study #1: Change orders (cont.)

    Findings > Contractor overran the SPW budget > Change order increased general conditions for duplicate trade/craft

    scope of work to recover SPW overages > Owners senior project manager approved this change order Program controls in place were not functioning as intended.

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  • Case study #1: Change orders (cont.)

    Control recommendations > Contract change order controls > Multiple review and approval requirements for change orders prior to

    executio