No Brainer

As of the beginning of this year we have started carrying out contract compliance recovery audits in the Netherlands together with Connolly. We check whether a supplier is invoicing according to what is agreed upon in the contract with our client, or not. Connolly is a US based company, hence there American clients are more experienced in these kind of things, as claiming is part of their DNA. We, Dutch, seem to believe that our suppliers do behave better.

After six months we jointly come to the conclusion that Dutch contractors are no better than their peers in the US. For Dutch people this may be a surprise but keep in mind that suppliers view a contract as a way to secure business with a valued customer to generate revenue and profit streams. Procurement views a contract as a mean to structure a framework for business relationships with suppliers, to lock in value and control costs. The contract is the basis of the relationship. Contracts often get executed, or “operationalised,” differently from their terms and conditions.

This occurs for a number of reasons:

  • Terms are interpreted differently by the parties creating financial exposures.
  • Urgent needs for goods and services and evolving relationships create situations where adherence to the financial terms and conditions “slip.”
  • Financial transactions are not executed according to the terms of the contract.
  • Bulk discounts, rebates, “true up” clauses, and credit notes are overlooked or forgotten.
  • Original contract terms may be compromised by new rates, or billing methods that are counter to the contract language.

Contract Compliance Recovery Auditing helps to ensure that the value expected when a contract is negotiated is actually delivered by verifying that execution is in compliance with the financial terms and conditions of the contract.

Hence, Contract Compliance Recovery Audits result into findings. Here comes the difficult part because our clients need to take position with respect to a finding. Do they agree, partly agree or disagree with our findings. In practice, clients agree in 95% of the findings. This percentage is not applicable to suppliers. Usually they agree on issues as double invoices, work invoiced that has not been carried out and so on and so forth. These findings are referred to as no brainers.

But what if parties disagree on the contract mechanism. These type of findings appear to have a serious financial impact. The reliance on the supplier and the good relation may withhold our clients to collect the whole euro amount and a settlement is a more logical solution. These are business decisions and can only be taken by the business. But to give you a little bit of advice to avoid a headache, these findings are usually split and half of the euro amount is collected.

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