Tips for Executing Subcontractor Audits

We share some advice from our top clients

While it may not be your favorite part of the job, as the manager or owner of a construction company, you may need to perform a subcontractor audit from time to time.

There are a few reasons for this. First, it can help you identify risks. The wrong subcontractor for the wrong job can lead to a disaster, especially if it ends up putting your project behind and costs you more money.

Here are a few tips for executing subcontractor audits that will help you learn more about the people you’re working with and give you more information to use when selecting a subcontractor.

Know Your Auditing Process

You may include information about doing an audit in the contract you have with subcontractors. If you do, then you both understand the formal process of the audit. If you don’t, then you should still follow some sort of standard auditing process.

Normally, you use a fairly simple process that takes little time. You’ll need to know what information you need, how to evaluate that information, and how to analyze your conclusions before you start an audit. Otherwise, it may become more costly than you anticipated.

Audit requirements can vary greatly, so it’s always best for both you and the subcontractor to have an idea of the process before you start. If you aren’t certain how to go about an audit, you can learn more about the process from the Institute of Independent Auditors.

Who Will be Involved?

In most cases, you have more than one person doing the audit. For example, you would have someone from your financial or accounting department review the subcontractor’s finances, while someone from planning may review and evaluate the subcontractor’s estimates or look at their construction project manager software to see if there are errors in the records. You’ll need to make sure there’s good communication between everyone involved so that both your team and the subcontractor knows what’s going on.

Some Things to Evaluate

When you’re doing your audit, here are a few of the things you’ll want to evaluate:

  • Current projects: is the contractor meeting their estimate? Are they on-schedule? If not, why not?
  • Do they have financial information available? Is that information accurate?
  • Have they had any issues with performance? Have previous contractors been pleased with their work?
  • Do they have all of the proper licenses?
  • Are they bonded and insured?
  • Will they turn around and subcontract work out to someone else? If so, what processes do they use to evaluate their own subcontractors?
  • Have they had any safety violations, or are there other red marks on their record?

Do Your Audits in a Timely Manner

If you wait too long to audit a subcontractor, you may find that they no longer have some of the information you need. Some businesses follow the three-year rule, which means they start to purge documents after three years. While not all subcontractors will do this, be aware that waiting too long to do an audit can cause some issues.

What questions do you have about conducting subcontractor audits? Comment below to join the conversation!

Construction Management
October 2, 2020
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