Construction projects represent some of the most complex and sizable financial transactions.
For too many building owners, one of the most important steps in the construction process is overlooked, the final Construction Audit.
A construction audit identifies actual and potential overpayments, overcharges, failures to recoup reimbursable expenses, etc., that may occur as a result of oversights due to the complex inter-relationships of contracts and the massive amounts of paperwork involved in the various transactions. While the money in the deal may be mostly the landlord’s, the tenant also has a vested interest to ensure the amount specified to be spent is able to cover all that is needed.
An example of a benefit to the tenant is depreciation. Certain elements of the entire construction project may be considered tenant’s property and thus the tenant may benefit from a large amount of depreciation. On a multi-million dollar project, a million dollars of depreciation makes a large financial benefit. Most often overlooked, then tenant’s depreciation of improvements may contribute to the lowering of the effective rent in a comprehensive financial analysis.
For sizable projects, a final construction audit ensures that the construction costs billed by the contractor and payments made by the owner are appropriate.
Construction audit provisions are standard language in most AIA contracts that your general contractors use on an everyday basis. Accordingly, GCs are very aware of your audit rights. In fact, often a GC is happy to have an audit, since it may actually result in an expedited final payment.
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