Construction projects are among the most complex financial expenditures undertaken by businesses. Construction contracts are complicated and include pricing agreements (i.e., lump sum, time and materials) and other contracts that should be audited. Unfortunately, too many construction professionals overlook this important step in the construction process. At Cotney Construction Law, we know that you strive for a final project that is not only aesthetically pleasing but one that is also cost-effective. Consult with a construction lawyer in Franklin, TN if you are concerned about your contracts, costs, and potential construction delays.
What is a Construction Audit?
If you have ever wondered if you were being billed correctly or if your construction costs have been thoroughly reviewed, you should place more priority on performing a construction audit. Besides, investors, clients, and even lenders may request these audits to validate whether the project is being completed in accordance with the contract terms. The purpose of an audit is not solely about looking for cost recoveries or overbilling, but it also about cost prevention. A construction audit also provides process improvement recommendations for the project management team and can assist with disputes and litigation.
High-Risk Costs That Can Affect Performance
Even if a project is completed under budget, it does not mean that all costs were appropriately handled. This is why contract language is extremely important—enlist the assistance of a construction attorney in Franklin, TN for a thorough contract review. The following are considered high-risk areas that should be audited as they can negatively impact performance:
- Change orders
- General conditions
- Material costs
- Equipment rental costs
- Labor burden
- Subcontractor payments
- Subcontractor contracts
Why Construction Audits Are Integral to Projects
Since there are many people and processes involved in a construction project, a construction audit is a crucial tool that can be utilized to monitor project performance to ensure that all is on track and under budget. Conducting effective audits of your construction activity can:
- Help you avoid costly mistakes when entering contracts
- Help you identify problems before project costs exceed the projected budget
- Ensure the best value is received when contracting with subcontractors
- Ensure that change order prices are fair
- Help you identify overcharges
- Ensure that cost controls are working as expected
Without the proper controls, construction site costs can quickly spiral out of control, but an audit can identify who is responsible for what costs. Additionally, conflicts arise due to the inability to stay within the scope of the project. An audit improves internal controls thereby ensuring that project managers are doing their jobs properly. Audits also help determine the progress of a project, which helps parties to gauge when payments are due (based on completed milestones, for example).
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.