The Meter is Running
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Capital improvement costs can get out of hand.
AUTHORCarl Cesarano, Principal at Cesarano & Khan
PAGE #p. 47
Providing the accurate, real-time data and prudent advice, Cesarano & Khan help clients make sound decisions and correct errors.
The Problem. One of our bigger co-op clients was starting a monster $40 million capital-improvement project. They had refinanced their mortgage and taken out additional funds for the project, which involved facades, windows, doors, and all the ancillary stuff surrounding that for the multi-building complex. They, of course, had an engineer and an architect who did all the bidding. It was a five-year project.
The Epiphany. As their accountant, we were concerned that over the course of five years the project’s cost could get out of hand. There’s always this assumption that if you do a big job, there will be cost overruns. It’s almost inherent in the business. The co-op didn’t have the economies of scale to let the job get out of control. If it did, the co-op just didn’t have the funds to cover it.
The Execution. We proposed to do cost monitoring of the project in real time. Not only would we monitor the total cost of the project, but we would also break it down by vendor. We would review A.I.A. contracts, monitor payment requests, watch out for double billing, and monitor change orders – and we would do so weekly. Unlike an owner’s rep who might charge on a sliding scale or a percentage of the job, we charged the co-op an hourly fee, depending on which level of accountant was involved.
Looking at the project from a financial perspective, we knew the base costs. When a change order came in, we now had a new total cost. We knew which payments were made, and what was left to pay. We knew the money we had, and we could spot if we were falling short. When we did, we summarized all the charges from every vendor, added up all their change orders, the dates, the amounts. We presented this financial information to the board, and in real time board members had to do some decision-making based on this data. Bottom line: they couldn’t run out of money.
The Result. Throughout the project we caught so many mis-postings, mis-billings and double billings. We’re not saying these things were done purposely; they could have been oversights. They always say there are going to be cost overruns over the initial base bid of at least 10 percent. We got it down to approximately 6 percent.
By providing the co-op with accurate, real-time data and prudent advice, we were able to help our client make proper decisions and correct errors with the various contractors and vendors.