Contract and Cost Audits
Contract and cost audits are effective methods of monitoring and evaluating the progress of a project. Such audits are typically undertaken on either a scheduled or an ‘as needed’ or ‘unplanned’ basis.
Scheduled audits can be a very useful tool if undertaken over the life of the contract. Through the scheduled audit process, Contract Control International (CCI) can provide valuable assistance and feedback to the project manager and/or senior management. These audits also act as a form of insurance, maximising cost recovery and limiting exposure and risk.
Unfortunately, the need for an audit is often recognised relatively late in proceedings when projects are heading off the rails or worse still, are out of control. In undertaking such ‘unplanned’ audits, CCI can specifically advise of problems and how to address them. Practical systems and procedures can then be put in place to maximise both recovery of costs and future entitlement.
CCI’s contract audits are a means by which contractor performance can be assessed prior to, during or upon completion of a contract. They are generally associated with major construction and maintenance contracts, although audits of other period and services contracts are becoming more common.
Accurate and timely contract audits can provide the Principal with information which will, for example, assist in:
- Short listing potential contractors;
- Ensuring a contractor is meeting its contractual obligations and requirements during the performance of a contract;
- Identifying the circumstances which have led to a contractual non-compliance; and
- Assessing whether a contract extension may be offered to a contractor in, for example, a period contract situation.
As a result of an audit, advice and guidance might typically be provided in relation to some of the following:
- Site / office personnel
- Progress on and off site
- Contract conditions
- Contract management
- Delays and disruption
- Extension of time claims
- Contractual claims
- Planning / programming
- Communication problems
- Contractual relations
- Liability and risk exposure
- Progress claims and payments
- Financial performance
Whether a lump sum, schedule of rates or a cost-plus contract is being utilised, there are numerous ways overpayments and/or overcharging can occur. Most of these situations arise from misunderstandings, oversights or misinterpretations. This may be due to the volume of documentation involved in the contract, a scarcity of resources from either party or an approach by one party to look to maximize recovery or minimise costs.
A CCI cost audit is a cost-effective way of identifying overpayments or overcharging and provides an opportunity for obtaining cost recoveries.
A cost audit can also be used to verify various cost components of contractual and extra-contractual claims.
The cost of an effective contract or cost audit can be recovered many times over in:
- Better contract management and financial performance
- Avoidance of potential problem areas causing delays
- Improved recognition and resolution of variations
- Earlier payments of progress claims and variations
- Avoidance of contractual restrictions on entitlement
- Improved documentation and claim substantiation
- Reduced contract risks and liabilities
CCI’s aim is to assist project managers to become more effective by providing advice on specific issues and potential problems encountered during the project.
CCI is able to provide an organisation’s management with an objective view of the status of a contract. This view is often from a very different perspective to that of the people who are ‘close’ to the project and are usually involved on a ‘day-to-day’ basis.
A CCI audit can be a valuable and cost-effective tool to assist in achieving a profitable project.