Contract Audit Cost Savings Examples
Manufacturing Plant Expansion
The project was billed approximately $130 million for design, equipment and capital construction costs. During this audit, we worked closely with the Owner’s project managers and the construction manager representatives to recover approximately $2.4 million in subcontractor overcharges. Examples of cost recovery audit findings included (1) over $500,000 in excess charges from the sheet metal contractor who billed for apprentices at journeyman rates, (2) approximately $600,000 in mechanical contractor charges for equipment rentals in excess of equipment purchase cost, (3) over $400,000 in improper charges for AutoCAD rates, and (4) approximately $900,000 in other overcharges due to improper labor rate computations for small tools costs, overtime costs, payroll taxes and union benefits.
High-Rise Office Building - Cost Plus Contract
A contract compliance audit was performed for the shell construction of a high-rise office building which had been constructed under the terms of a cost plus a fixed fee contract. The contractor had billed approximately $80 million for the completed construction work. Our audit identified overstatements of reimbursable costs by the contractor in excess of $1.3 million. The primary overcharges concerned non-reimbursable overtime premium, owned equipment charges, non-expendable equipment purchases, charges for corrective work, etc. Owner's representatives negotiated the exceptions with the contractor before making final payment resulting in a cost savings of approximately $700,000.
Strip Shopping Center - Cost Plus with Max Contract
Prior to making final payment for the construction of the project, management requested a construction audit to be performed of the contractor's books. The contractor had indicated they incurred a cost overrun and were billing the Owner for the full amount of the contract guaranteed maximum which was approximately $4.0 million. The audit identified an erroneous payment had been made to the contractor, as well as several scope of work items where the contractor did not install the specified material. Management effected recoveries totaling approximately $200,000 as a result of the audit.
Hotel Resort Facility - Cost Plus with Max Contract
Approximately $50 million in construction costs were audited in connection with a cost plus with a guaranteed maximum contract for the construction of a resort hotel. The audit identified approximately $900,000 in potential overcharges due to overstatements of reimbursable costs, etc. Management negotiated a settlement with the contractor which resulted in a savings in excess of $300,000. Overcharges resulted from improper computations of payroll taxes and insurance, duplicate charges for vacation, improper handling of backcharges, etc.
Retail Store - Lump Sum Contract
A contract compliance audit was conducted during the latter part of the construction on a $12 million retail store. The job was hampered by over 200 change orders and several significant claims. Errors in handling allowance type change orders which resulted in overcharges of approximately $110,000 were found. The exceptions were reviewed with the owner's construction management representatives and the contractor's representatives resulting in adjustments being made to recover the full amount.
Office Interior Finish Work - Unit Price Contract
An interim contract billing review was conducted on a $10 million construction project involving interior finish work in a high-rise office building. Duplicate charges and errors in computing fee on change orders accounted for approximately $100,000 in overbillings by the contractor. In addition, a contract clause calling for a $150,000 electrical sub-station to be installed at no cost to the owner had been overlooked. Cost recoveries resulting from the audit amounted to approximately $250,000.
Land Development Dam Project - Unit Price Contract
Unit price billings and related contract documentation were reviewed in connection with the construction of a $2.1 million roller compacted concrete dam being built in connection with a mixed use land development. The audit identified improper charges for bonds and sales tax as part of the unit prices. Management obtained a refund of approximately $80,000 as a result of the audit.
