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Ask the Expert: Grant Thornton
ASK THE EXPERT: GRANT THORNTON LLP HOW A CONSTRUCTION AUDIT
CAN MINIMIZE COSTS AND RISKS
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As local distribution companies (LDCs) and their municipal shareholders develop assets and expand their services – often through non-regulated affiliates – they may find themselves engaging in an increasing number of construction projects. As they embark down this path, construction audits can be a critical means of avoiding costly bumps in the road.
Because construction projects involve a lot of moving parts, many factors and risks can end up costing time and money. Anything from vendor invoice errors to weather delays, unexpected change orders to damaged equipment, can quickly cause costs to spiral out of control.
A construction audit is a systematic review of a project to
confirm that contractors and subcontractors are performing in line with their quoted scope, timelines and objectives. As such, it can greatly minimize the risks of a project being derailed.
Construction audits and project success
There are essentially four ways a construction audit can help ensure your project runs smoothly.
It keeps costs in check: Construction costs can be quite volatile throughout a project’s lifecycle. A construction audit can help you hold participants accountable and ensure they manage and invoice their costs efficiently and correctly.
It holds the project manager accountable: In most construction projects, a project manager is responsible for making sure all participants focus on their prescribed scope of work while, at the same time, keeping the overall project running according to plan. A construction audit provides independent clarity on the project manager’s effectiveness and determines whether he or she is abiding by necessary safety measures and industry best practices.
It makes sure billings don’t outpace progress: A construction auditor typically visits the job site and, through conversations with onsite staff, reviews the progress to date. The auditor will also collaborate with onsite staff to make sure project timelines and milestones are met and, if there are issues, the auditor will communicate team concerns, challenges and conflicts to the relevant project leadership teams. This helps directly tie invoices to the completion of project milestones or contractual payment terms.
It keeps the workplace safe. Construction auditors can also review procedures dealing with hazardous materials, equipment and work site logistics to determine if all workers have access to a safe environment.
Construction audits and risk mitigation
There are countless ways that a construction audit can help you mitigate risk, but three are particularly important.
Bidding: External parties can sometimes try to influence the bidding process by submitting bids that are meant to be unsuccessful. They may also collude with other contractors or create false bids for the purpose of inflating pricing. Construction auditors can help confirm that you have a well-defined project procurement and bid evaluation process from the outset.
Contract execution: Contractors and subcontractors may try to pull together a business case for change orders and out-of-scope billings. Because construction auditors maintain a close eye on a project’s execution – and can review status updates with a sense of professional skepticism – they can assess the validity of change order requests and underlying supporting documents prior to approving any payments. Hold-back terms and conditions: The final sign-off on a contractor’s or sub-contractor’s work is a key way to protect yourself from financial risk on a project. Because it’s difficult to recover balances that have already been paid, it’s wise to actively advocate for a complete contract review or audit before the final payment or hold-back payment is released.
For more insights on construction audits and the value they could add in the context of one of your projects, please contact:
Ingrid Holbik Senior Manager, Assurance Services Power & Utilities Team Grant Thornton LLP T +1 416 369 7134 E Ingrid.Holbik@ca.gt.com
Angie Brown Director, Advisory Services Power & Utilities Team Grant Thornton LLP T +1 709 778 8841 | E Angie.Brown@ca.gt.com
