This document provides a summary of key principles for controlling construction costs on projects. It discusses the importance of staying ahead of the cost influence curve through comprehensive planning, defining project delivery methods, and controlling schedules. It also covers implementing safeguards in contract terms, controlling costs during bidding, and administrative/financial controls. Finally, it emphasizes the importance of conducting construction audits to effectively manage costs, hold teams accountable, and avoid/recover improperly billed costs. The overall message is that owners must be educated consumers and not assume contractors have their best interests in mind.

1. Innovating in Health
Care’s Unchartered
Territory
March 15 – 18, 2015
San Antonio, Texas

2. Principles of Construction
RELEVANT EXPERIENCE
• Marvin has 28 years of construction management experience in local, regional
and national design and construction markets.
• Marvin’s Sr. Project Management and Executive level expertise has contributed
to managing, shaping and placement of over $2 Billion of construction.
• Recipient of several (CNR) Construction News & Review Regional Excellence
Awards for Construction Cost Effectiveness and Partnering Excellence.
Marvin L. Johnson CCA, CCP
Manager-Team Leader Advisory
Services Construction Audit
Group
SERVICE EXPERTISE
• Integrated Project Delivery (IPD)
• Design-Build-Bridging (DBB)
• Development of PMP (Project
Management Plan)
• Analysis - Speed to Market Strategies
• Determination/Evaluation of Project
Delivery Method
• Project Incentives vs. Penalties
• Evaluation of Project Insurance
• Construction Audit Program
• Strategies for Phased Delivery and
Turn-over
• Managing Jurisdictional Issues
• PLA - Project Labor Agreement Review
• Budget, Analysis and Cost Controls
(Pre-GMP, GMP, IGMP/OGMP)
• Pre/Post-Bid Process Management
• Delay Claim Analysis
• Non-Compliance Analysis – Remedy
• High level cost avoidance and
Recovery

3. Principles of Construction
RELEVANT EXPERIENCE
• Bill is a member of the firm’s Executive Committee and serves as the Member-
In-Charge of Vertical Markets, leading the Real Estate and Construction
Advisory Service teams. He is responsible for the integration of all service
components of the firm to meet the unique needs of facility owners and real
estate developers, bringing a multidiscipline team of over 20 professionals
providing services to all phases of the construction life cycle; from project
inception, mobilization and construction, finalization and close-out as well as
project look-back analysis.
• Bill’s professional tenure has included work in both financial reporting and tax
as well as consulting in a wide range of areas including strategy development,
process improvement and technology. He has honed his skills as a trusted
advisor to the clients he serves.
SERVICE EXPERTISE
• Financial analysis and budgeting
• Strategy development and implementation of “Balanced Scorecard”
methodology
• Construction Auditing and cost control
• Organizational development including succession planning
• Development of tax strategies
• Process Improvement
Bill Willbrand, Jr., CPA, CCA,
CCP
Member, Advisory Services

4. PRINCIPLES OF CONSTRUCTION
Balancing Flexibility and Cost Control in Construction Projects

5. 0
High
Start Time Complete
Procurement
Bid & Award
Final
Design
Phase
Schematic /
DD Phase
Conceptual
Planning
Close-Out
Low Low
High
Ability
To
Influence
Cost
Construction
Project
Expenditure
Cost
Influence
Cost of
Construction
Pre-Construction Planning Construction Execution
Impacting Construction Costs on the Project
Learning Outcome #1
Staying Ahead of the Curve

6. Impacting Construction Costs on the Project
Learning Outcome #1
1. Understanding the Cost Influence Curve
A. Clear and Comprehensive Project Management Plan
• Program Development
• Design, Performance and Delivery
• Early Budget Development & Scope Identification
• Identification of Critical Owner Risk
B. Project Team Requirements
• Architect – Define your RFQ/FRP process
• Engineer
• Construction Manager
• Consultants
• Owner Directs
• Contingency Ownership
• Know what you are buying
• Establish team performance metrics

7. Impacting Construction Costs on the Project
Learning Outcome #1
C. Expectations – Corrective Actions
• Collaboration Strategies – Team Buy-in
• Pull Sessions – Ball-in-Court
• Schedule & Deliverables
• Reporting Progress and Procedures
• Communication Plan

8. Impacting Construction Costs on the Project
Learning Outcome #1
2. Define your Project Delivery Method
• Design-Bid-Build
• Design-Build
• Design-Build-Bridging
• Construction Manager Fee or at Risk
• Integrated Project Delivery – (“IPD”)
3. Other Control Cost Impacts
A. Schedule Control
• Managing Pre–Fab Units and Assemblies (MEPFP)
• Long Lead Items – Delivery of Large Purchases
• Design Delays - Consultants
• Weather Delays – Time Extensions
• Change Orders - Claims
• Code Related Issues – Authorities Having Jurisdiction (“AHJ”)
• Sub-Contractor Default Insurance (“SDI”)
• Jurisdictional Impacts

9. Impacting Construction Costs on the Project
Learning Outcome #1
B. Keeping Your Program on Task
• End Users
• Design Team
• Lack of Team Collaboration and Communication
C. Managing the Project Scope
• Design Team
• CM – Allowances, Contingency Spend, Labor Cost
• CM Self-Performed work
• CM performing work with an affiliate company
• CM Mark-ups/Self-Performed work and subcontracted work
• General conditions adder on change orders
• Owner Directs
• Contingencies – Unforeseen and Acceleration

10. Understanding Safeguards in Contract Terms and
Conditions
Learning Outcome #2
What Does Your Paper Say?

11. Understanding Safeguards in Contract Terms and
Conditions
Learning Outcome #2
1. Standards and Procedures
• Design, Construction Planning and Programming
• Owner’s Right to Audit Purchasing and Document
• Purchasing and Documents
• Communication Lines of Authority, Corrective Action, Team Performance, etc.
2. Key Contract Provisions
• Scope Detail and Clarity
• Fees and Cost of Work – Define Define Define
• Cost of insurance - SDI, CCIP, OCIP
• Changes and Scope Modification
• Time Extensions, Delays, Force Majeure
• Use of Contingency (Acceleration and Standard) Allowances
• Defining unforeseen conditions
• Close-out

12. Understanding Safeguards in Contract Terms and
Conditions
Learning Outcome #2
3. Define and Manage General Conditions
• Know what you are buying in general conditions
• Owner Directs - Owner Furnished Contractor Installed (“OFCI”)
• Define cost associated with Interim Life Safety Measures (“ILSM”)
• Will you allow general conditions mark-up on changes?
• Allowing general conditions on subcontracted work and their changes
• How does time extensions impact general conditions?
• Know what staff should be in the general conditions
On-site staff vs home office staff
Corporate safety personnel
Management staff car-allowances
Staff bonuses – Hourly rates
• Trailer/Site office furniture, equipment and supplies
• Small tools, equipment and consumables

13. Controlling Construction Costs During the Bidding
Process
Learning Outcome # 3
• Define the Bidding Process
• CM and Owner Transparency
• Effective Pre-Bid and Post Bid Communication
– Clear description of the project and challenges
– Performance requirements and expectations
• Control the Post-Bid process
– Post bid scope review and validation
– Post bid scope escalation
– Subcontractor over-time, shift-work, early turn-over, etc.

14. Controlling Construction Costs During the Bidding
Process
Learning Outcome # 3
• High level Owner involvement in the process
• The Devil is in the Details
• Don’t assume CM is right
• Validate all recommendations for sub awards

15. Controlling Construction Costs During the Bidding
Process
Learning Outcome # 3

16. Implementing Administrative and Financial Controls
Learning Outcome # 4
Management Accountability Recovery Avoidance
Don’t Role the Dice on Your Project

17. Implementing Administrative and Financial Controls
Learning Outcome # 4
• Know Your Owner Risk Points and Tolerance
• Maintain Clear Contract Language
– Owner’s Right to Audit
– Preservation of project financial data – All Tiers
– Project team transparency
• Know Your Process and Enforce Compliance
– Internal Team Performance

18. Implementing Administrative and Financial Controls
Learning Outcome # 4
• Controls for Review and Approvals
– Don’t just sign-off
• Construction Cost Management
– Validation and certification of cost
– CM Controlling Discretionary and Entitlement Spending
• Mapping of Your Processes
– Tracking the project
– Measuring success and improvement
– Correcting non-compliance
– Lesson’s Learned

19. Implementing Administrative and Financial Controls
Learning Outcome # 4
• Implementing a Construction Audit Process
– Control and Mitigate Risk
• Preconstruction
• Construction
• Close-out
• Post Construction
• Keeps You Ahead of the CURVE
• Predictable Results - Reproducible Results
• Process - Fair and Equitable

20. Implementing a Construction Audit Process is
Essential to a Successful Project Outcome
Learning Outcome # 4
Construction Audit Objectives
To conduct a detailed analysis and examination based on a systematic method established by NACA
National Association of Construction Auditors and the Institute of Internal Auditors. This
comprehensive examination shall be performed by an independent 3rd party and involves the complete
review of all project data determined by the Owner as relevant and auditable. The audit review of the
project may include all or a portion of the construction cost-of-work including all subcontractor records,
operations and financial performance on the project. The project audit is performed with a stated
purpose.

21. Implementing a Construction Audit Process is
Essential to a Successful Project Outcome
Learning Outcome # 4
Construction Audit Key Elements
• Effective Management of Cost
• Team Accountability
• Avoiding Cost that are Non-allowable
• Recovery of Improperly Billed Cost

22. Implementing Administrative and Financial Controls
Learning Outcome # 4
Take-Away?
1. Early Warning Signs (Is there Blood In the Water?)
• Finger Pointing and Excuses
• CM or subs state the design was incomplete
• Code official changed his mind or stance on an issue
• You would have paid for this cost anyway
• Shifting of risk back to the Owner
• Why don’t you trust us?
2. Do not accept unsubstantiated explanations just because you know
the firm
3. Construction Fraud – It Exist at all Levels……………
4. Know where the risk are……… as an Owner
• Incomplete drawings
• Unclear scope and bid documents
• Post bid activities, clarifications, exclusions and ooops……….

23. Implementing Administrative and Financial Controls
Learning Outcome # 4

24. As an Owners, how do we maintain defensive positioning?
• No flying by the seat of our pants
• Never assume the contractor knows what they are doing
• Have the courage to change the market for your benefit – No more
“Business as Usual”
• Hold contractors and design professionals accountable - Recover losses
from fees
• Establish strong contracts and then use them – “Say what you mean and
mean what you say”
• Do not allow your judgment to be clouded by “The Relationship”
Implementing Administrative and Financial Controls
Learning Outcome # 4

25. Be an Educated Consumer
Do not be naïve about the impact of allowances, contingency and
change orders.

26. Thank you for your Attendance
Questions and Answers

27. Chance Favors the Prepared Mind
If you would like more information on Managing Construction Costs through the
Implementation of an Audit Review Program, please contact: