1. WiszCo, LLC John L. Wisz CONTRACTING SMARTER:
Strategies Designed to Minimize Regular Occurring
Audit Issues
National Association of Construction Auditors
7th Annual Conference
South Lake Tahoe, California
September 17-19, 2018
WiszCo, LLC John L. Wisz

2. John L. Wisz
Principal
WiszCo, LLC
9446 Hilldale Drive
Dallas, TX
(214)
ContractING SMARTER: Strategies designed to minimize regular occurring audit issues
NACA 7th Annual Conference South Lake Tahoe
September , 2018

3. What are we doing wrong? What do we need to do?
CONTRACTING SMARTER
What are we doing wrong? What do we need to do?
NACA 7th Annual Conference South Lake Tahoe
September , 2018

4. Making the same mistakes over and over
CONTRACTING SMARTER
What are we doing wrong?
Making the same mistakes over and over
What do we need to do?
Get smarter
NACA 7th Annual Conference South Lake Tahoe
September , 2018

5. Why do the same mistakes repeatedly occur?
Knowledgeable personnel do not have diverse enough experience
Employee turnover: Knowledge and experience leave the organization
Employee apathy, laziness and lack of care/attention to detail (unengaged)
Inexperienced personnel do have the necessary knowledge or experience
Personnel lack awareness or otherwise believe nothing will go wrong (overconfident)
Contractor experience, savvy and negotiation skill outweigh Owner skills
NACA 7th Annual Conference South Lake Tahoe
September , 2018

6. Procedurally Contractually Decision Making (Strategic)
How do we get smarter
Procedurally
Decision Making (Strategic)
Action Taking (Doing something)
Engaging (Involved, paying attention to detail)
Contractually
Refinement and enhancement of contract language to minimize loopholes/risk, reduce ambiguity and to strengthen those areas that are problematic in nature
NACA 7th Annual Conference South Lake Tahoe
September , 2018

7. Procedurally – getting smarter
Procurement Procedures
Delivery Method (Fast Track; Competitive Bid/Proposal; Negotiate, At-Risk; Design-Build)
Bidding at the subcontract level; Buyout Tracking
Negotiating (resist the temptation to believe everything that is said)
Use pre-contract audit procedures to verify data prior to agreeing to same in contract
SOV considerations (Prime and Subcontract). Ensure narrative matches values.
Include a contract value summary in each subcontract that reconciles to award amount
Accounting and Project Control Requirements (See AIA Audit Provision) – Evaluation?
Determination of compensation parameters
Contract type (basis of Compensation): Lump Sum; Cost Plus; GMP
Compensation methods for Labor; Insurance; Bonds and other Costs
Fee Determination (Fixed and/or percentage and related amounts)
Contingency and Savings considerations
Implementation of effective Contract Administration procedures
Payment Application Reviews
Change Order Reviews
NACA 7th Annual Conference South Lake Tahoe
September , 2018

8. Accounting and control systems
AIA A102 and A133 Contract Excerpt:
§ Article 11 and Accounting Records (Audit Provision)
The Contractor/Construction Manager shall keep full and detailed records and accounts related to the Cost of the Work and exercise such controls as may be necessary for proper financial management under this Contract and to substantiate all costs incurred. The accounting and control systems shall be satisfactory to the Owner.
What things are conspicuously absent from the above paragraph?
Deficiencies in Systems and Record Keeping:
Systems and Reports and non-existent
Weak (not sufficiently robust) – Data capability and reporting is functionally limited
Cannot readily or easily run custom reports or queries
Cannot readily or easily download data into desirable formats (such MS Excel)
PDF Images vs. Raw Data (Relational database characteristics)
Payment Applications and Changes Orders
NACA 7th Annual Conference South Lake Tahoe
September , 2018

9. Compensation Methods - Labor
Raw Labor and Labor Burden:
Lump Sum (or included within LS General Conditions)
Agreed-Upon / T&M Rates (fully loaded)
Actual Cost Basis
Hybrid: Actual Raw Labor + Agreed-Upon Burden %’s
Direct Personnel Expense (DPE) or Salary Cost x Multiplier
What is subject to audit?
What should be eliminated?
Confusion and/or ambiguity
Complexity
Hidden Profit
What should be Considered?  PRE-CONTRACT AUDIT PROCEDURES
NACA 7th Annual Conference South Lake Tahoe
September , 2018

10. Contingency - Considerations
What is it for (intended purpose)?
How does it get created?
Is it included in all contracts?
Owner vs Contractor Contingency – What’s the difference?
What requirements should be included in the contract?
Use and sources of funds (allowable vs. unallowable)
Approval requirements (Change Order, LIA, Payment Application, other)
Disposition
What should be done with Unspent Contingency (at conclusion of project)?
NACA 7th Annual Conference South Lake Tahoe
September , 2018

11. Savings - Considerations
What are Savings and are they desirable?
Should Owners split Savings with their Contractors? Yes/No? How? Why?
Are all types of Savings splittable? When should they be split?
How are Savings achieved?
Means and methods, efficiency and effectiveness
Savings achieved through excessively high, unrealistic or inaccurate budgets
Buyout Savings
Unspent Contingency
Unspent Allowances
Cost saving ideas, value engineering, scope changes
What can be done to mitigate risk in this area?
NACA 7th Annual Conference South Lake Tahoe
September , 2018

12. Insurance & Bonds - Considerations
OCIP; CCIP; Contractor/subcontractor provided – What is best approach?
Payment & Performance Bonds (Prime & Subcontract). Necessary? Desired?
Subcontract Default Insurance (SDI) or “Subguard” – Better than P&P Bonding?
Compensation methods
Fixed Cost
Fixed Rates
Actual Cost (subject to audit)
Experience modifiers, discounts, retrospective-rated plans, losses, risk transfer fees, administrative costs
DO NOT agree to unaudited fixed rates without some form of due diligence. Having specialized experience of knowledge in these areas is a must.
NACA 7th Annual Conference South Lake Tahoe
September , 2018

13. contractually – getting smarter
Areas generally needing attention:
Right of Audit provision
Change Order Pricing and Administration
Defined Costs vs Actual Costs
General Conditons/General Requirements
Labor and related Labor Burden
Trades (including Self-performed work and Cost + Fee arrangements)
Insurance and Bonds
Contingency and Savings
Fee considerations (Fixed or Percentage)
Used for determining Change Order Values (Prime and Subcontracts)
Applied to Cost of Work
Circular calculations
NACA 7th Annual Conference South Lake Tahoe
September , 2018

14. Philosophy 101 NACA 7th Annual Conference South Lake Tahoe
September , 2018

15. Conclusion and wrap up WiszCo, LLC QUESTIONS? John L. Wisz THOUGHTS?
COMMENTS?
John L. Wisz
Principal
WiszCo, LLC
9446 Hilldale Drive
Dallas, TX
(214)
NACA 7th Annual Conference South Lake Tahoe
September , 2018