As a critical component of both national and local infrastructure, transportation systems, from airports to public transit, require constant modernization and improvements to support their continued service and growth. Government organizations are entrusted with identifying and completing these projects. 

This can be a tall order, as large infrastructure projects come with an inherent risk of fraud, waste, and abuse: Beyond the overall estimate that organizations lose 5% of revenue to fraud each year, the AFCE’s 2024 ranking(Opens a new window) of top median losses by industry listed construction and government and public administration at #4 and #5, respectively, out of 22 industries studied.

The complexities of heavy-construction transportation capital projects can open their managing agencies to a range of risks, including budget constraints, regulatory and compliance matters, and environmental and legal risks. The success of every project is heavily dependent on having the right expertise, through personnel who understand the project’s specific needs and mandates. 

For agencies handling once-in-a-generation capital programs, a third-party monitor can be an invaluable resource. These external resources offer additional oversight throughout the project’s lifecycle, not only bringing expertise and facilitating compliance across all project aspects – funding, delivery, and much more – but also mitigating against areas of potential fraud, waste, and abuse.

What is an external monitor’s role?

The goal of an external monitor is to 1) make sure that the project owner has the knowledge and extended resources to deliver a successful project while 2) guarding that project from sources of fraud, waste, and abuse. Some jurisdictions/authorities or funding sources require that projects have an integrity monitor – such as New York City(Opens a new window)(Opens a new window)(Opens a new window)(Opens a new window)(Opens a new window), for certain projects – but even where not required, external monitoring can still be in the project owner’s best interest.

Every capital project involves risk. Monitors help to identify risks in specific project areas and build controls to guard against them. 

Monitors do not conduct formal audits, nor do they fulfill or remove the auditing requirements of a project. Instead, the monitor works on behalf of the project owner to extend the project’s oversight. Rather than performing formal audits, they may do spot checks on project compliance requirements, procurement, or in a host of other areas; then, if deficiencies are found, they can assist in doing more intensive oversight in the areas specifically required, continuing for an appropriate duration.

As needed, the scope of a monitoring agreement can be tailored to the project scope and the specific project requirements. The monitor’s review work can include a variety of disciplines that one would not generally consider for an audit, such as engineering, construction management, environmental review, and contract and grant compliance.

Protect your funding

Specifically for transportation heavy construction, it is common for funding to come from a federal grant, potentially supported by a mix of other sources. Government entities must make sure that they remain compliant with all the terms of all their funders, whether that includes: 

• Federal funding programs such as the Bipartisan Infrastructure Law (BIL) and Airport Improvement Program (AIP)
• State or local grants or tax-exempt bonds
• Private funding sources: Passenger facility charges, concessionaire rents and fees, operating revenue
• Public-private partnership (P3) agreements

Monitors can help provide oversight for a broad range of tasks and needs to help meet specific grant provisions and reporting requirements. These include:

• Spending in accordance with grant requirements, e.g., avoiding unsupported expenses or fraudulent expenditures
• Office of Management and Budget’s (OMB) Uniform Guidance for Federal Awards (2 CFR 200): Proper financial management, procurement, audit requirements, cost principles, reporting and record-keeping – and monitoring subrecipients for compliance
• Procurement preferences for domestic product; the BIL also includes a more stringent requirement for American-produced iron and steel, as detailed in the Build America, Buy America Act 
• Periodic tasks, such as monthly certified payroll reviews and annual and closeout reviews
• Reviewing contractual key performance indicator (KPI) reporting for accuracy and completeness

Complement your collaborators

Government entities responsible for these infrastructure projects generally contract with outside entities to perform phases of the project, such as design and delivery.

A current common misconception is that the easiest or most cost-effective way to reduce project risks is to use a Construction Manager at Risk (CMAR) contract, rather than a traditional delivery model like Design-Bid-Build (DBB). With the CMAR delivery model, the construction manager becomes involved during the design phase and oversees the project through closeout. This shifts the risk to the CMAR to deliver the project at a guaranteed maximum price (GMP) and can shorten project timelines. 

But, it can also add risks to the quality or delivery of the final project, if, for example, the CMAR falls back to their traditional general contractor or prime roles, or has close relationships with the primes or GCs they are managing; or if GMPs are not locked and settled in the early stages of the project. The project owner pays a premium on GMP in exchange for, in theory, lowering their internal project management costs, but that perception of a lower need for internal resources dedicated to project controls may leave them even more susceptible to fraud, waste, and abuse.

Key ways to mitigate those surprises include locking in the GMP early on in the project and having strong contracts, policies, and procedures to discourage deviations. Monitors can also supplement the project controls by operating as a third-party monitor independent of project payment decisions, and serving as an advisor to quickly identify and mitigate risks to assist the project in delivering on time and under budget. 

In conclusion: A key last tool for project success

As demonstrated, the key to success in a transportation construction project is successful project management. These significant, multiyear projects have a collection of moving parts, and they can be vulnerable to fraud, waste, or abuse. 

A government agency that is well-versed in this discipline can make informed decisions throughout the life of the project. Yet not every agency has this level of competence across the various methods of delivery, funding, and compliance requirements. Where needed, an independent monitor can be the critical last tool in the box to position a project for success.

CohnReznick offers comprehensive monitoring and compliance expertise based on extensive experience monitoring high-profile transportation and infrastructure construction projects. Reach out to discuss how we can help protect your projects, to best serve and strengthen your communities.