Audit Contract Provisions and Real-Time Cost Reporting in Construction Contracting

With the advent of contracting methods in the construction industry that result in the owner compensating a contractor for “actual costs” as opposed to a lump-sum payment, the owner must protect its interest by taking on the responsibility of confirming amounts actually incurred by the contractor and determining if these amounts are allowable under the terms of the contract. To succeed at such an endeavor, an owner must have a general understanding of contract interpretation, the risk of not incorporating an express audit provision in its contract, and the implications of not implementing a real-time reporting structure. This paper sets forth the benefits of requiring a real-time reporting structure in the owner-contractor agreement.