What Types of Construction Contracts Should be Audited?

‍

^{There are multiple construction delivery methods, each with their own unique contract terms and conditions.  All have components that could be audited if unlimited resources were available to conduct such reviews.  Since that is almost never the case, construction audits should be focused on projects with contracts likely to pose the most risk potential.}  

^{Construction delivery methods include Multi-Prime, Design-Build, and Integrated Project Delivery (IPD).  However, the two most commonly used construction contracts are Design-Bid-Build and CM at Risk.  Design-Bid-Build, commonly known as “fixed price” or “hard bid”, is often used on smaller, less complex projects where the design is complete.  Correspondingly, CM at Risk is utilized on larger, more complex projects.  This approach often allows work to begin earlier, before the design is complete.}

^{Unlike Design-Bid-Build, CM at Risk contracts usually have a Guaranteed Maximum Price (GMP).  The Owner must pay the Cost of the Work incurred plus a Fee up to the GMP value.  The Contractor/Construction Manager is entitled to recover their costs for General Conditions, General Requirements, Subcontracts, and Insurance, as well as their Fee.  The Contract will specify how these items are to be charged to the work – normally at actual cost incurred, a fixed sum, or a specified rate.}  

^{While the primary focus of a Design-Bid-Build contract are the change orders, all costs billed to a CM at Risk contract should be subject to review for appropriateness.  As a result, CM at Risk contracts have a greater risk of Owner overpayments than Design-Bid-Build agreements.  Specific attention should be directed to direct labor costs, direct equipment costs, insurance billings, and information technology billings.}  

^{Audit plans should naturally gravitate to CM at Risk projects because of their (likely) greater dollar values.  However, if having to choose between projects with similar values, but different delivery methods, auditing the CM at Risk agreement is likely to be the correct action.}

‍