Our client, a large, regional healthcare system, was constructing a $50 million facilities refurbishment in preparation for a $175 million additional expansion to their hospital.  Due to the large financial outlay, Protiviti was engaged to perform a construction audit of the spending to date on the refurbishment.

Protiviti’s Capital Projects and Contracts professionals provided insight to our client through the following steps:

1. Determination of the appropriateness of the charges, accuracy in billings and compliance with contractual provisions for a sample of the spending to date
2. Identification of potential discrepancies for follow-up and remediation
3. Observations for consideration during the execution of future capital projects

Our professionals gained an understanding of our client’s construction process and determined they had very deep in-house construction management skills and project reporting capabilities. Subsequently, we only found some minor cost-recovery items in our initial direct findings. 

Review of the contract and its cost components indicated that certain cost items such as insurance and sub-guard (subcontractor insurance in lieu of bonding) were calculated as a percentage of direct costs, not actual costs incurred.  Since they were added as costs, our client was paying profit and overhead mark-up on these items to the general contractor.  We discussed with the owner that the contractor could be using these cost items as a profit center and the owner may be paying a mark-up on items already marked-up. 

Based on our findings, our client questioned the mark-up calculations with the general contractor, who then agreed to amend the contract, which amounted to savings in excess of $70,000 on the refurbishment project (an almost 200% return on investment to the owner).

In addition, the general contractor, who was recently awarded the additional $175 million hospital expansion, agreed to carry the new calculation forward into that contract, for an estimated $1,200,000 additional savings. This was a return on investment to the owner of more than 3,000% versus previous terms.

How We Help Companies Succeed
Our Capital Projects and Contracts professionals help organizations better align business processes, people and technology to maximize contract compliance and reduce cost over billings. Our experienced professionals use our proven methodology to assist companies in identifying, measuring and mitigating the risks inherent in contract activities. We help companies gain control of their contracts, processes and risks.

Protiviti (www.protiviti.com) is a global business consulting and internal audit firm composed of experts specializing in risk, advisory and transaction services. The firm helps solve problems in finance and transactions, operations, technology, litigation, governance, risk, and compliance. Protiviti’s highly trained, results-oriented professionals provide a unique perspective on a wide range of critical business issues for clients in the Americas, Asia-Pacific, Europe and the Middle East.
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\r\nProtiviti has more than 60 locations worldwide and is a wholly owned subsidiary of Robert Half International Inc. (NYSE symbol: RHI). Founded in 1948, Robert Half International is a member of the S&P 500 index.
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