What is a Construction Audit and How Can it Help Your Project?

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A construction audit is a review of various aspects of a project to ensure they are performing appropriately and in keeping with the contract.

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Every major construction project is bound to be expensive, there’s no escaping that. The cost of materials, the workforce that needs to be employed, and a number of other overheads.

It can be pretty complicated to keep track of all the expenses. Hiring companies can help a lot, but that is not the end of it.

The majority of major construction projects are the so-called G-Max projects, meaning that the contractors will be paid the actual construction cost, up to a guaranteed maximum (hence the name).

Seeing how these projects typically take a lot of time, involve several different companies and cost a lot of money, there is a lot of room for errors and deliberate miscalculations.

Fortunately, there’s a simple solution – construction audits.

What is a Construction Audit?

At its core, a construction audit is a meticulous review of various facets of a construction project.

The primary aim is to ensure that these aspects align appropriately with the stipulations laid down in the contract and that they are performing efficiently.

It is not a complete diagnostic of the project's management but rather focuses on specific scopes.

Components of a Construction Audit

While the exact components can vary based on the nature and scale of the project, a construction audit typically reviews:

  • Budgeting and Cost Management: Examines if the project is within budget and checks for any anomalies or discrepancies in financial dealings.
  • Quality Control and Assurance: Focuses on the quality of materials used, workmanship, and adherence to standards and codes.
  • Contract Compliance: Assesses if the work aligns with what has been stipulated in the contract, ensuring no breaches.
  • Safety Protocols: Checks for the implementation of safety measures, ensuring the well-being of workers and minimizing potential legal issues.

Why is a Construction Audit Essential?

The role of a construction audit is multifaceted:

  • Risk Mitigation: By scrutinizing various facets of the project, audits can identify potential risks early on, allowing for corrective measures to be taken before the problems escalate.
  • Cost Savings: With a keen eye on budget and expenses, construction audits can identify overpayments, inefficiencies, or potential areas of savings.
  • Enhanced Accountability: Regular audits ensure all parties involved – from contractors to suppliers – are held accountable for their roles, fostering a transparent working environment.
  • Ensuring Compliance: It ensures that the project adheres to local regulations, building codes, and other necessary legalities, thus preventing potential legal complications down the road.

How Can a Construction Audit Help Your Project?

Having established its importance, let's delve into the tangible benefits a construction audit brings to your project:

  • Financial Oversight: One of the primary benefits is financial clarity. By consistently reviewing expenditures, the audit ensures that funds are used judiciously and that the project remains within the budgetary constraints.
  • Ensuring Timely Completion: Delays can be costly. An audit can spot bottlenecks or issues that might cause delays, allowing project managers to address them proactively.
  • Boosting Stakeholder Confidence: When investors, stakeholders, or clients know that a project undergoes regular audits, it boosts their confidence in the project's success, knowing that it is being closely monitored for quality and efficiency.
  • Reducing Disputes: With clear documentation and regular check-ins, any potential disputes between parties can be addressed and resolved swiftly, avoiding prolonged conflicts.

Should You Perform an Audit?

In most cases, there are some funds that get lost in the paperwork, and an audit is a great way to extract these funds and not let them go to waste.

Whether by mistake or by design, most building projects get mischarged, some quite drastically.

And the higher the cost of the project, the larger the sums of money which seem to fall through the cracks.

Some Tips for Performing Construction Audits

First of all, make sure that you do not wait until the construction is completed to ask for an audit. An audit performed at the beginning or in the middle of the construction can ensure that the contractor and other parties involved know that a close eye is being kept on the project and will be more careful with finances in the future.

Larger projects almost invariantly have a lot of loose ends. In most cases, the cost of the audit will be significantly lower than the amount of money saved or recovered after the audit is done. However, there are exceedingly rare situations when the owner has been charged less than the actual value.

The most common issue that auditors find is overcharging for both the materials and labor by the contractor. Similarly, if the contractor is renting the equipment, some of those charges are grossly overblown.

Apart from that, it is not uncommon to see costs that are not related to the construction included in the final bill. Things like car registration, team building events, marketing costs, or company parties have been regularly found by skilled and experienced auditors upon closer examination of the documentation.

Ultimately, whether you choose to perform a construction audit or not is your own decision. However, leaving money on the table is not a sustainable and prudent business move for small businesses.

About the author

Brian Meiggs
Hi, I'm Brian Meiggs! A personal finance expert, entrepreneur, and the founder of My Millennial Guide. My drive is to help others unlock the wealth of freedom and pave the path to financial success. With my bachelor's degree in finance, I help millennials follow the smart money in order to increase their earning potential and start building wealth for the future. I write regularly about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. I have been quoted in major publications including Business Insider, Yahoo Finance, NASDAQ, Discover, GoDaddy, BiggerPockets, Fox News, Debt.com, Quick Sprout, Money Geek, MSN Money and many more!