Construction Audit: Key Steps and Typical Contractor Errors

Errors made during construction can negatively impact a company’s profit and the safety of the structures being erected. To assess the construction budget and prevent cases of fraud and price inflation by contractors, an inspection is carried out with the involvement of independent experts. The goal of the audit is to ensure the object’s compliance with design characteristics, assess the quality of work, identify potential risks, and develop recommendations.

It can be conducted regularly, at each stage, up to the commissioning of the object, or as a one-time event, at the end or at a specific stage of work.
The process necessarily includes checking documentation, estimates, and assessing the technical characteristics and financing of the project. This is a complex procedure requiring skills, knowledge, and qualifications.

Types of construction audit

• Financial. Includes inspection of design and estimate documentation and other contract documentation for the correctness of prices, efficiency of use and distribution of financial resources; helps avoid unnecessary costs and unjustified increases in construction costs.
• Technical. Aimed at assessing the condition of the object and compliance with standards. Quality of materials, adherence to technological processes, identification of violations and defects. It is often ordered when purchasing unfinished structures to analyze the prospects for further use.
• Internal – assessment of procurement, unjustified expenses.
• External – for checking the contractor. Identifying incompetence and dishonesty of partners. Risk minimization. Reporting, deadlines, adherence to technological processes, quality of materials.

A construction audit is necessary when the amount charged by the contracting organization raises doubts. It is also conducted when calculating penalty sanctions in case of non-compliance with construction completion deadlines or poor quality of work. Contacting an audit company for an inspection is necessary in litigation. Regular inspections also help control the spending of funds in targeted financing of objects.

Construction audit allows keeping projects within budget. It ensures transparency of financial operations, helps reduce the number of revisions and alterations, and prevents problems that may arise during subsequent operation of buildings and structures due to mistakes made.

Common contractor errors

Most often, problems arise due to the lack of documentary agreement between the client and the contractor. One should not rely on verbal promises to replace materials, complete work strictly by a certain date, or finish something later. All project issues should be discussed only in written correspondence. Any documents are transferred upon signing an act by both parties indicating the exact dates of transfer. Excessive trust and verbal agreements can lead to unpleasant situations and errors, for example:

• Loss of money transferred as an advance. If the contract does not have a clear payment schedule, this can be a reason for fraud by dishonest contractors. To avoid losses, money should not be transferred to an account without a legal basis.
• A contractor may promise to build the building’s foundation in two weeks, but in fact take an advance payment and disappear for an indefinite period or stretch this work over a longer period. To prevent such delays, penalty sanctions are stipulated in the contract.
• To prevent violations of construction technologies, all stages and materials must be specified in the estimate. It also wouldn’t hurt to control the work on site.

Some contractors deliberately quote a very low price when concluding a contract, and during construction it turns out that some works are not included in the estimate, and additional payment is required for their performance.

Sometimes private companies work on recommendation, without “paperwork,” promising to perform the work quickly and efficiently, exactly on time. However, these promises turn out to be untenable at the first conflict. Therefore, all aspects of cooperation must be formalized in writing, with preservation of correspondence and receipts.

Recovering the amount spent on construction from a contractor with the status of an individual entrepreneur is almost impossible. And litigation will lead to additional delays and losses. Therefore, it is important to inquire about him before starting work, take direct part in the construction, control all its stages, even if you trust the contractor.

Errors in concluding a work contract

To perform construction work, the contractor must have documents such as a certificate, SRO admission, and certificate of conformity. In their absence, he may be held administratively liable. The contract is considered concluded if its essential terms are agreed upon:

1. Subject of the contract (location, volumes and types of construction work are indicated; drawings, diagrams and plans are attached).
2. Conditions for performing construction (it can be performed by the contractor independently or with the involvement of subcontractors).
3. Start and end dates of work.
4. Sources of financing.
5. Prices for services, materials and payment procedure.
6. Content of the project.
7. Liability of the parties.

In the absence of one or more essential terms, the contract is considered not concluded, so the client cannot demand that the contractor perform the construction or recover a penalty from him for violation of deadlines.

Problem-solving algorithm

Most errors and problems can be avoided at the contract conclusion stage. The future contractor must specify specific deadlines. For example: a team of 4 people will complete this work in a month. If there is no specifics, vague deadlines are given, e.g., from 4 to 8 weeks, depending on circumstances, etc., this may indicate a lack of construction experience, free teams, or other problems. If errors are discovered at any stage of the work, construction must be stopped and the problem discussed with the contractor:

• If he does not agree with the claims presented, an act listing the defects is drawn up in the presence of the contractor. He must review the document personally and sign it.
• In case of refusal, this fact is also recorded in the presence of two witnesses.
• A claim with the identified deficiencies and deadlines for their elimination is handed to the contractor.
• If he refuses to accept it personally, the document is sent by registered mail to the legal address.

Untimely elimination of defects and refusal are grounds for applying to judicial authorities. Construction audit ensures clear control of construction, helping to prevent losses and conflict situations. The result of its conduct is a detailed conclusion with reliable findings and recommendations for further actions. It contains:

• Description of all defects and problems found at the facility with defect statements, laboratory reports, and survey protocols.
• Cause-and-effect relationships.
• Potential risks and consequences.
• Cost estimate for eliminating the identified problems.
• Explanations and recommendations for correcting defects and filing claims against the contractor.

Our company has been operating for over 15 years, providing expert services in various fields, including construction. We conduct thorough and accurate audits of all processes and assets, identify shortages, irrational use of financial resources, and violations of technological processes. We help clients control construction at all stages, preventing losses due to negligence and dishonesty of contractors. Our staff includes highly qualified specialists with extensive experience and specialized education.