Auditing Construction Costs
Auditing construction costs helps bottom line
By Kevin Kenyon
With a close eye on the bottom line, a growing number of developers are looking to benefit
from auditing their construction costs, though most still don't see the light.
With pressure mounting to trim costs at every turn, especially for public companies looking to
create value for shareholders, no area is immune to scrutiny today.
Construction costs are no exception to this rule.
Considering the millions of dollars being spent each year on renovations, expansions, and
ground-up development, experts say the decision of whether to audit construction costs can
have a significant impact on a developer's balance sheet.
"The importance and value of construction auditing has increased significantly in recent years,"
said Ray Bocci, audit director for General Growth Properties, Chicago. "More and more
developers are seeing the cost benefit of auditing construction projects, mainly because it's a
good way to add value to the company."
Gone are the days when developers would simply rely on accounting clerks to perform spot
checks to keep contractors honest, he said. Many firms are now either using their own audit
staffs or are bringing in outside specialists on a contingency fee basis.
By Bocci's estimate, General Growth has easily saved millions over the years by auditing all of
its major projects, and by periodically auditing some of its smaller developments.
The size and breadth of projects being undertaken today leave plenty of room for errors, and
thus, potential overcharging.
"With the complexity of construction contracts these days, there's some real risk and
exposures to potential contractor overcharges," he explained. "It's all a matter of
As for possible areas of risk, Bocci noted that payroll, benefits, equipment rentals,
subcontractor payments and overhead costs are usually the main areas of contention.
http://www.icsc.org/srch/sct/current/sct9905/21.htm (1 of 4)5/13/2005 8:42:39