Budget leaks and hidden costs can typically drain 2% to 5% of a project’s total budget impacting profitability and inviting litigation. Without rigorous contract management, even the most iconic projects can be hollowed out by these issues.
A well designed and executed construction management contract is more than just a formality – it protects your project’s financial and operational health. However, as projects grow in complexity, the gap between what is written in the contract and what happens on the ground can widen as our team experienced.
The Case: A Change Order issued during the execution phase of a project stipulated using a higher grade of concrete than initially planned. The contractor categorized the change as an ‘Extra Item’ which was incorrect as per contract terms. ‘Deviated Item’ was the right term as the Change Order was a deviation from and not beyond the scope of the original contract ensuring fair and consistent pricing.
Repercussions: An ‘Extra Item’ entitles the contractor to compensation for the additional work and material not included in the original tender. This erroneous categorization would have skewed the budget of the project considerably.
Such budget leaks are rarely the result of a single catastrophic event. Instead, they are incremental, occurring at the intersections of labor, equipment, and administrative oversight.
To manage a contract effectively, one must first understand where the value typically escapes. This is where rigorous Contract Management comes to the rescue of projects. Professional third-party audits often reveal some primary culprits:
Unapproved Change Orders: Absence of strict contract management process to document and approve shifts in scope can lead to protracted legal disputes.
Labor Rate Overcharges: Labor is often the largest variable cost. Misclassifying workers, inflating overtime hours can quietly add to a project’s total cost without actual productivity.
Duplicate Equipment Billing: Proper contract management tracks equipment systematically to ensure you only pay for what is actually on-site and working.
Non-Compliant Markups: Without constant monitoring, markup creep can occur, where subcontractors apply fees to items explicitly excluded in the prime agreement.
The Power of CQRA’s Third-Party Construction Management Audit
Contractual Fidelity – When it comes to abiding by construction contracts it is imperative that managers understand the fine print and subtle differences. Experienced CQRA professionals do the important task of reconciling ground reality with contract terms on paper.
Building a Culture of Accountability – When subcontractors and vendors know that an independent expert will be verifying their billings against the contract, accuracy naturally improves. Ultimately, robust contract management serves as a deterrent.
Turning Findings into Foresight – The real value of CQRA’s audit is about process improvement. By fixing mid-project issues early, project owners can realign the budget and timeline before damage begins.
CQRA’s Construction Management Audit transforms the contract from a mere legal document into an effective tool to safeguard project health, preventing the leakage that costs 2% to 5% of a project’s total budget.
Contact CQRA to know how we can collaborate.
Website: www.cqra.com
Email: marketing@cqra.acts-int.com
Contact: +91 9112232323
