Turner & Molina Texas Tech & SMU 9/19/19 Strategic Partnering: Building a Winning Platform for Construction Auditing September 19, 2019 Session Objectives Participants will be able to: • Examine a strategic partnership in action • Develop a plan to initiate and structure a strategic partnership with management • Identify risks related to construction costs and consider best practices to address them Turner & Molina Texas Tech & SMU 9/19/19 Concept, Strategy, Process…Design and Construction Auditing TEXAS TECH UNIVERSITY SYSTEM Kimberly F. Turner, CPA Texas Tech University System SOUTHERN METHODIST UNIVERSITY Michael S. Molina, AIA, NCARB Southern Methodist University Conceptual Development Purpose – “TO SERVE…” • Based upon ~$1.6B value of CIP it is critical to focus on clarity and trust • • • • State of Texas – Governor, Legislature, THECB Board of Regents Donors Institutions – chancellor, presidents, CFOs, provost, deans, faculty, students Turner & Molina Texas Tech & SMU 9/19/19 Conceptual Development • Ultimate Service • Superior Management • Positive Impact • • • • Master Planning / Strategic Planning Fiscal Stewardship Project Management Quality Assurance Conceptual Development Clarity of Focus • Challenges ‐ • Established processes “that can’t change” • “Buy‐in” from leadership myth • Change • Training change • Internal issue of “I have a good method already” • Clarity of responsibility and accountability • Inward focus vs outward focus • I love you man…but Turner & Molina Texas Tech & SMU 9/19/19 Strategy • Develop a fiscal and process audit pathway enhancing and solidifying trust, transparency, stewardship and communication • Develop a clear but separate reporting structure between FP&C and OAS • Meeting of the minds process • Facilities Planning & Construction • Office of Audit Services q • Two‐tier concept (internal / external mentality) • FP&C staff education / buy‐in to concept • Budget impact – line item commitment Process • Internal sell!!! • Locating internal talent • 20 minute burger! • Outreach to partners • Architects / engineers • Contractors • Subcontractors • Suppliers • Clarity of “engagement” • Pool of partners – selection process Turner & Molina Texas Tech & SMU 9/19/19 Tier 1 • Internal talent • Relationship building with PM group • PM vs fiscal skillset…”right talent – right task” • Liaison to OAS • Focus on granular invoice review • Contract access and knowledge • Direct link to PM and accounting arm of partners Tier 2 • Talent – seasoned auditors within the design/build space • Three‐step process • Pre‐construction audit • Affirm contractor’s commitment to contract and accounting of costs in conformance with the schedule of values as shown on the GMP and/or Contract Value • Agree upon billable rates for: Insurance, Field Staff, and Allowances, etc. This increases efficiency and effectiveness during the invoice review process • Interim audit • • Benchmark test conducted at around 50% billed project completion, to measure contractor’s adherence to billing parameters set during the pre‐audit Makes collecting potential “over billings” easier at this stage, since “over billings” are more significant at the end of the project • Final audit • • Conducted after all costs have been incurred and before contract is ready for close out Costs are trued‐up and any un‐allowed costs are credited back to the owner before retainage is billed • Outside auditor will make recommendations to improve future contract performance Turner & Molina Texas Tech & SMU 9/19/19 Results • Intangibles • Proven transparency • Clear results • Reporting at all levels • Proven fiscal stewardship • Improved partner invoicing and clarity • Minimized gaps from repeat partners • Tangibles • Perception change • Process audit results • Fiscal results • Drill into a few case scenarios • Overall performance of program Case Scenario: Petroleum Engineering ‐ Project Cost $22.8M TIER 1 Cost Avoidance: $70,918.92 TIER 2 Recoveries: $123,226.00 Audit Cost: (46,655.00) ROI: $ 76,571.00* *Includes: “verifiable general conditions,” “per diem,” and “change orders fairly priced,” to name a few. Turner & Molina Texas Tech & SMU 9/19/19 Case Scenario: Honors Residence Hall ‐ Project Cost $28.3M TIER 1 Cost Avoidance: $94,280.28 TIER 2 Recoveries: $226,244.00 Audit Cost: (52,012.50) ROI: $ 174,231.50* *Includes: “billing scope needing adjusting,” “change orders fairly priced,” “mark‐up,” “general conditions,” and “cut payroll: vehicle and subsistence vehicle allowance increases that were not approved,” to name a few Case Scenario: System Administration Office ‐ Project Cost $27.3M TIER 1 Cost Avoidance: $182,611.93 TIER 2 Recoveries: $266,098.00 Audit Cost: (63,537.50) ROI: $ 202,560.50* *Includes: “billing scope needing adjusting – Bond fee formula was incorrect,” “duplicate charges,” “SDI,” and “insufficient sub. Backup,” to name a few Turner & Molina Texas Tech & SMU 9/19/19 Overall Program Performance TIER 1 Cost Avoidance (August 2012 – Present): $4.6 Million TIER 2 * Recoveries to Date: Audit Costs to Date: Net Recoveries Return on Investment $3,218,000 $ 836,000 $2,382,000 285% * Completed audit projects only. An additional $684K in audits are under contract Turner & Molina Texas Tech & SMU 9/19/19 TTU SYSTEM CIP PORTFOLIO April 2010 – March 2018 BOR Approved Capital Projects Campus Projects Budget Cost +/‐ TTU/TTUS 45 $ 721,373,762 $ 701,817,625 ‐$ 19,556,137 HSC $ 168,789,138 $ 168,507,978 ‐$ 281,160 HSC EP $ 99,200,000 $ 98,272,256 ‐$ 927,744 ASU $ 92,216,000 $ 90,339,826 ‐$ 1,876,174 TOTAL 64 $ 1,081,578,900 $ 1,058,937,685 ‐$ 22,641,215 (Cost Avoidance / Debt Reduction) ‐2% Turner & Molina Texas Tech & SMU 9/19/19 • • • • • Let’s do this all over again…easy, right? Public to Private … what the delta? Application of contract language Process orientation / PM’s Buy in from stakeholders Questions and Discussions Kim Turner 806.742.3220 kim.turner@ttu.edu Michael Molina (214) 768‐1265 msmolina@mail.smu.edu 10