Contributors: Steve Summers, CPA, CIA | Principal, Contract Compliance Audit & Andy Spencer, CIA | Senior Manager, Contract Compliance Audit
Colleges and universities are facing nearly a trillion dollars in capital facility needs over the next decade. Most institutions are well-prepared for that challenge. Years of planning, approvals, fundraising, and contractor selection go into every major build.
But one critical question often goes unanswered once construction begins: who’s making sure every dollar is being spent the way your contract requires?
The internal oversight gap
Most universities have someone responsible for construction financial oversight. However, that person is typically stretched across multiple roles and doesn’t have the time to dig into the details of where the money is going.
Part of the problem is that people underestimate what real construction oversight looks like. Evaluating a payment application means understanding:
- Contract language
- Cost allocation
- Subcontractor billing structures
- Whether the work being billed for was actually completed
For most higher education finance teams, you cannot find this specialized expertise in-house. What ends up happening is financial decisions for these projects get made the only way they can…by people doing their best with the tools and knowledge they have.
The gap between having someone responsible for oversight and having someone genuinely equipped to perform it is where these budgets get derailed.
Higher ed isn’t like every other construction owner
Your institution faces a set of pressures and complexities that most other construction owners simply don’t face. Understanding what makes them unique is the first step to managing the financial risk that comes with them.
Deadlines can’t be moved
The academic calendar adds an extra layer of complexity to your project timeline. Move-in day isn’t flexible. Fall semester can’t be pushed back. Your first home game is set in stone. This pressure plays a factor in every financial decision made to ensure the project is ready in time for the school year.
More funding sources, more oversight
The financial structure of a major public university construction project is unique and can also be where cost exposure hides. Your institution is likely funded through a combination of bond financing, donor contributions, and federal sources, each with its own oversight requirements. This means more stakeholders, more reporting requirements, and more compliance obligations attached to every build.
No dedicated in-house construction expertise
Large corporations and healthcare systems that build regularly often maintain dedicated construction finance teams focused on contract compliance, cost analysis, and billing oversight. Your institution likely does not have that infrastructure, nor should they be expected to. Construction is not your core business. But that gap means when a major capital project launches, the financial oversight function is usually absorbed by someone already carrying a full workload in capital planning, finance, or internal audit.
What slips through when no one’s watching
When no one has a close eye on the budget, costs creep in that are difficult to catch after the fact. This isn’t unique to smaller or less resourced institutions.
Imagine, you’re deep into your current development and start to notice that the numbers don’t quite add up. You bring in someone to take a closer look, and at just 25% complete, they find over $250,000 in billing discrepancies.
This isn’t a hypothetical. This is a real example of a project that we’re currently auditing.
What we found ranged from technical billing errors to non-compliant charges.
- Pre-construction work that had already been covered under a separate contract was billed again under the current one.
- Relocation expenses came in well above the agreed estimate (both quantity of resources and total cost per resource).
- Labor burden rates were applied incorrectly.
- Intern hours were being billed at rates that didn’t reflect what was in the contract.
- Monthly costs billed at actual rather than the rates in the construction agreement.
- Non-compliant expenses all charged back to the university.
- Multiple 75-inch TVs
- A grill and picnic tables for the onsite trailers
- Wholesale club memberships
All of which were charged back to the university. None of it had been flagged because each line item, on its own, appeared defensible.
The moment our team flagged these charges, they stopped. But they had been billed month after month on a project that wasn’t even halfway done. This is exactly why getting a mid-construction audit when they did matters. What gets caught early gets corrected. What doesn’t slides through and gets paid.
Getting the right contract oversight in place before it’s too late
Most of these risks are manageable if you have the right structure in place before the project gets moving.
Can you answer ‘yes’ to these questions?
Is it clear who internally owns construction financial oversight? Do they have the construction background to support the project?
Having a name attached to the role and having someone genuinely equipped to do it are two different things.
Has anyone reviewed your contract language specifically for cost definition gaps before you signed?
Vague scope definitions and undefined cost terms are where overruns start and where change orders become nearly impossible to challenge.
Can someone on your team evaluate whether every change order is legitimate? Are they just being approved to keep the project moving?
Assessing a change order requires knowing what’s commercially reasonable in a construction context. Without that baseline, there’s no basis for pushback.
Can you trace costs through your subcontractor layers and verify they’re being billed correctly?
Most universities have no visibility below the GC level, and that’s where cost risk lives.
Do you have a structured financial review scheduled before the project hits the halfway mark?
What gets caught early can be addressed. What doesn’t gets buried deeper and becomes significantly harder to recover as the project progresses.
If you’re not confident in your answers, bringing in a third party to conduct a construction audit can be the difference in losing out on millions of dollars.
When to consider a construction audit
A construction audit isn’t about second-guessing your contractor or slowing your project down. It’s a reliable way to ensure your institution has the right expertise in place before off-contract costs have a chance to compound.
There’s no wrong time to introduce oversight on a major project. Earlier means more opportunity to course-correct. Later still means less exposure going unaddressed than if no one had looked at all.
Rather than waiting until you notice something looks off in the numbers, the institutions that best protect their capital investments engage the right expertise early, ideally before the contract is even signed. If what you read in this piece sounds familiar, we’d welcome the conversation. The earlier you engage, the more options you have. Connect with us.
