Subject and Scope
What savings are in store for you?
The scope of a
tank installation contract and final drawings were compared
to detect scope deletions. The project mechanical engineer
had approved the final payment. The project auditor decided
to review the contract before the payment occurred.
A drawing revision after the
subcontract was executed deleted several tanks which were in
the scope of the agreement. The subcontractor agreed to a
reduction of the final payment of $95,000.
are a common source of overcharges.
measures can avoid shocking overcharges!
The subcontract was converted
from fixed price to cost-plus. A review of the costs was
required to verify billed prices and quantities for labor,
material, and equipment.
The audit produced findings of
overcharges totalling $450,000. Subsequent negotiations
resulted in a cost recovery in excess of $250,000.
Another review of the same
contractor revealed that a superintendent was billing his
time under two subcontracts. The cost recovery from this
issue was approximately $20,000.
Project controls unearth costs before they are covered up!
subcontract called for construction equipment to be billed,
inclusive of operator time, at rates of $65 to $125 per hour
for each hour that the equipment was productively operated on
the project site. A review was performed to ascertain
compliance with the subcontract terms.
The review resulted in findings that
the subcontractor was billing full daily utilization of each
piece of equipment on the project site. Only one operator was
paid to operate a water truck, roller, and motor grader. The
subcontractor had overcharged more than $60,000 for unused
Review of another excavation
subcontractor on another client's project revealed an
overcharge of $195,000 for crushed stone.
There may be gold in steel details!
The steel fabricator
for a new chemical plant claimed that its post-completion
audit of the steel fabrication and supply contract indicated
more than $140,000 of structural steel was unbilled. The
project civil engineer agreed to the payment. The project
auditor conducted his own audit of the contract.
The conclusions from the project
auditor's study of the detailed steel drawings, bills of
lading, and invoicing were that there were $65,000 of steel
represented by unmatched receiving documents and that the
$75,000 balance was not owed to the fabricator.
It is important that the
administration of such blanket orders be current, accurate,
and complete. It is very difficult to review steel details at
the completion of a project. This type of contract justifies
having a construction auditing function!
Supply Purchase Order
measures avoid costs before they are set in concrete!
supplier furnished ready mix concrete from an on-site batch
plant. The project auditor tested actual volumes of poured
concrete versus billed quantities and found unfavorable
variances which ranged from 8% to 12% on a consistent basis.
The project civil engineer had a number of concrete trucks
weighed before and after deliveries, computed theoretical
weights, and verified the project auditor's finding.
The metering system was corrected,
with the result that subsequent variances ranged from -5% to
+5%. Correction of the light-loading problem saved more than
$325,000. Coupled with other procurement methodologies
recommended by project auditing, more than $800,000 was saved
on the cost of concrete
course to minimize costs requires attention to the details!
While the contractor engineers
were excellent and ethical in every respect, the engineering
billing systems used to charge their services were tested to
determine whether time charges were accurate, rates were
correct, and that reimbursable expenses were not in excess of
The reviews resulted in alternative
sources of supply for certain supplies, materials, and systems
which produced savings of more than $200,000. Corrections of
multiplier factors to conform with the contract reduced fees
by another $150,000. Total savings on project savings from
multiple reviews exceeded $550,000.
home the point that excessive construction costs are not
The contract called for craft
labor to be billed at actual cost plus defined markup
percentages. The project auditor conducted thorough reviews of
base costs and certain markups, including worker compensation
The labor cost component was
overstated by more than $625,000, which the contractor
refunded. The review found that the labor classifications upon
which worker compensation premiums were being charges were
inaccurate. Reclassification reduced project costs to
completion by more than $380,000.
Another cost sometimes based upon
craft labor are billings for small tools. There are
opportunities for savings in this area also.