Protiviti helps large regional healthcare system save US$1.7 million in construction and contract costs

Protiviti helps large regional healthcare system save US$1.7 million in construction and contract costs

Large Regional Healthcare Client Story
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    Key to Success

    Change Requested: 
    To perform a construction audit of a US$50 million facilities refurbishment.
    Change Envisioned : 
    Perform an in-depth review of the current construction contract executed to identify and assess potential risk areas.
    Change Delivered: 
    Based on our findings, the client questioned the mark-up calculations with the general contractor, who subsequently agreed to amend the contract.

    Change Requested

    A large regional healthcare system with annual operating revenues of US$520 million requested Protiviti’s guidance to perform a construction audit of a US$50 million facilities refurbishment, which was to be followed by a US$175 million expansion to its hospital. The organization brought in Protiviti for the audit based on its satisfaction with our initial contract compliance review.

    Change Envisioned

    Professionals from our Capital Projects & Contracts practice performed a detailed contract compliance audit for the client. We utilized our proven approach to perform an in-depth review of the current construction contract executed between the general contractor and the client to identify potential risk areas. We also performed detailed testing and data analytics to assess each of these risk areas.

    In addition, we worked with our client to identify key contract terms and conditions that had the potential for negotiation on future projects, and provided recommendations for consideration and negotiation by management prior to the execution of the organization’s US$175 million hospital expansion.

    Our expertise in capital project management and contract compliance enabled our team to identify high-risk or unfavorable contract terms quickly for our client and present recommendations for consideration and negotiation on future capital projects.

    A review of the contract and its cost components indicated that certain cost items were calculated as a percentage of direct costs, not actual costs incurred. We discussed with our client that the contractor was possibly using these cost items as a profit center and that, as a result, the client may be paying a mark-up on items already marked up under contract.

    Change Delivered

    Based on our team’s finding, the client questioned the mark-up calculations with the general contractor, who subsequently agreed to amend the contract. In addition, the contractor agreed to apply this new calculation to the US$175 million hospital expansion, which would result in an estimated savings of US$1.2 million for our client.

    Protiviti has continued to provide audit support for the US$175 million hospital expansion. The healthcare system’s director of audit services recently confirmed that our recommendations and test work have resulted in an additional US$500,000 of savings for the organization related to the contractor-controlled insurance program.

    Our team has received outstanding feedback from the director of audit services as well as the organization’s audit committee.

    How We Help Companies Succeed

    Protiviti’s Capital Projects & Contracts professionals help organizations manage and mitigate capital project risks by:

    • Assessing gaps in processes and internal controls
    • Implementing improved processes and internal controls to address gaps
    • Proactively identifying risks that can lead to fraud, waste and abuse
    • Detecting and recovering over-billed costs from contractors/vendors/suppliers
    • Supporting counsel on capital projects in dispute
    • Assisting management in maintaining compliance throughout the duration of a capital project

    Our Capital Projects & Contracts professionals help organizations better align business processes, people and technology to enhance contract compliance, improve process performance and reduce cost over billings. Our experienced professionals use our proven methodology, frameworks and data analyses to assist companies in identifying, measuring and mitigating the risks inherent in capital projects. We help companies gain control of their capital projects, associated processes and potential risks.

    Companies with any of the following indicators may benefit from our services:

    • The company has never performed an audit of construction projects.
    • The company has used the same contractors for many construction projects.
    • The company’s internal audit function does not have the capabilities to audit construction projects effectively.
    • The company has incurred construction cost overruns and schedule delays on past projects.
    • The company is unable to forecast capital outlays due to poor project reporting.​