If you have been watching the news lately, you are likely aware that a former Senate policy advisor is facing charges relating to the awarding of contracts for the Parliament West Block renovation project. I hate to say this but we saw this coming – or at least the potential for this to happen. When you are undertaking any large, complex capital project, being proactive is paramount. By looking for red flags and taking preventive measures throughout the construction, you can protect yourself from surprises, costly errors, fraud and litigation. With the recent developments and the East Block rehabilitation project running through 2022, it is more important than ever for these proactive steps to be taken.
We think of red flags as being very obvious but sometimes when you are in the middle of a lengthy project, these flags become harder to see. The key warning signs you should be looking out for are:
- Loading of overheads – this means that indirect costs are claimed as direct and results in a duplication of claimed costs. This can be avoided by making sure that the agreement clearly outlines what costs are eligible in addition to ensuring proper oversight and monitoring throughout the project.
- Numerous contract amendments – This usually occurs shortly after a contract is awarded and large amendments are processed. This raises concerns about the fairness of the bidding process as well as whether the original requirement was well defined. This can result in overpayments and fraudulent transactions. I would advise that you clearly define the roles and responsibilities of the procurement and technical authorities early in the process and ensure effective monitoring throughout the process.
- Contract burn rate – this is noticeable when there are substantial increases in funding or a significant portion of the contract has been spent in very little time. This can very easily result in fraud. To avoid this, there needs to be sound controls at both the buyer & seller levels, and ensure that there is active monitoring of spending and contract progress reports.
- Change in Ownership – if the contractor chosen has been bought out by another company, there is no validation that the internal controls of the new company are effective. During transition, control systems need to be closely monitored as they are at significant risk for potential misconduct.
In addition to watching out for red flags, adopting simple, inexpensive due diligence strategies can be very effective in preventing surprises. Through due diligence practices such as initial visits to contractors’ sites and regular monitoring of contractor invoices and progress reports, you can protect yourself and the integrity of the project. Formal audits can also be an effective tool however they are expensive, time consuming and often, they are not conducted until the end of a project which can result in unwelcome surprises and complex litigation.
For more warning signs to look out for and additional steps you can take to prevent yourself, check out our FREE webinar on the Parliament Buildings Rehabilitation Projects. For more information, feel free to contact me at [email protected].
André Auger, CGA, CFE
Government Services Advisor