Hammersley Stone - AGC of Wisconsin

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John Carpenter Clifton Gunderson LLP Field office audits help discover what's really going on at the construction site 28 Wisconsin Constructor / Issue 1 • 2008 FINANCE Auditing Takes a Field Trip If you believe what you’ve read in the news, the construction industry seems to have a rough time managing two important commodities: time and money. You’ve seen the headlines... City project now $1.7 million over budget Cost overruns, delays plague new development What is it about the construction industry that seems to make time and money a contractor’s worse enemies? The simple answer is, there is never enough of either. The fact is building roads, bridges, shopping malls and condominiums is an incredibly complex process, with a multitude of variables and uncontrollable influences on how and when work gets completed. Add to this the fact that large construction projects are often managed through temporary field offices. What’s Going on Out There? Field offices are where the work really gets done, and where internal controls are put to the test. Adequate procedures and controls for everything from qualifying subcontractors and reviewing bid specifications, to authorizing change orders, are an absolute must if contractors intend to minimize unauthorized changes, undocumented costs and unprofitable jobs. Strict controls and individual accountability are critical in field offices because — • They are a temporary center of business operations • They deal with multiple points of decision-making authority • Their staff is often supplemented by temporary employees with minimal training Because field offices are geographically separated from the main business office, they often stray from the standardized work processes as defined at company headquarters. Determining what really goes on in field offices requires an in-depth audit of current controls and procedures. A timely and thorough audit of field office operations spearheaded by the company’s lead finance or accounting manager can minimize risks for the contractor, subcontractors, owners and developers. This is yet another example of the value one can gain by pulling the “back” out of that back-office finance and accounting department mentioned in recent articles. Asking the Tough Questions A field office audit should ask some tough questions, and the audit team should expect honest, complete answers from those in a position to assure compliance. Inquiries should cover, among other things, general workflow and communication as it pertains to: the bidding process, qualification of subcontractors, contract language, subcontractor’s cost management, change order processes, document management, bonding issues, and progress reporting. Answers to some questions will vary based on the type of contract, and the
specific nature of the work (commercial versus residential, for example). Ultimately, all of the bases must be covered to address potential gaps from existing policies, or to maximize the effectiveness of any new policies that will result. A few guidelines for developing field office policies and procedures — Make an individual responsible for change orders Change orders are troublesome and difficult to monitor, but a lack of controls can quickly drain away profits and cause delays. Ultimately, the contractor must accept responsibility for getting change orders approved by the owner. Whether it leaves a paper or digital record, controls must be in place and working from the very beginning of the project. For their part, subcontractors must accept the change order procedure as a condition of doing business. Never give oral approval A wise person once said, “If it’s not written down, it doesn’t exist.” That may be the position the project owner takes when a contractor can’t produce adequate documentation. No one likes paperwork, but it is a necessary evil. Signatures, dates and other concrete documentation may be the difference between getting paid for a project change and having to subtract it from your bottom line. Don’t guess – write a “not to exceed” estimate There are situations where a formal estimate is not possible due to time constraints. A “not to exceed” estimate may seem like a blank check, but it will not be if there are adequate controls to assure that invoices are accompanied by proper documentation of outside costs. Schedule frequent reports and updates A single project can take months or years to complete. If something is not working, you’ll want to know it sooner rather than later. Time has a way of growing small problems into big ones. Anticipate factors that can impact schedules Changes, repairs, schedule coordination, weather and labor are among the issues that can and should be addressed in contract language. What if Wisconsin Constructor / Issue 1 • 2008 29
Page 1: A Publication of the Associated Gen
Page 4: Jerry Klobucar 2008 AGC of Wisconsi
Page 7 and 8: Bob Barker AGC of Wisconsin Executi
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