Contract compliance in practice: what a review of a service contract showed

A contract compliance analysis compares what is actually delivered and invoiced with what is set out in the contract, price appendices and procurement documents. When we carried out such an analysis of a service contract for a municipality, the supplier largely met the contract’s requirements for quality, environment and staff. The shortcomings were in the invoicing: wrong addresses, wrong prices and, above all, invoices that could not be linked to an order.

How the analysis was carried out

We started from the signed contract, the procurement documents, the price appendix, a gross price list for other services and a supplementary price list that applied from a certain date during the year. Against this we set invoice lines and order lines from the municipality’s finance system, linked to this particular contract.

We went through all orders in the period, around eighty. One had been cancelled. For each of the other orders we checked three things:

• that the invoiced address was included in the price appendix
• that the invoiced price matched the agreed price for that address
• that the invoice had the order number that the contract requires

We also followed up the requirements that do not show on an invoice. The supplier submitted a quality and environmental policy, certificates for quality and environmental management, a chemicals register with product and safety data sheets, trade certificates, competence documentation, certificates of collective agreement and documentation on vehicles.

What the analysis showed

The largest discrepancy concerned traceability. About three in four invoices lacked an order number, even though the contract requires one. In several cases the municipality could still find the right order, which shows that the ordering routines exist. They only need to be applied consistently.

About one invoice in five concerned an address that was not in the price appendix. There was therefore no contractual basis for invoicing that particular address. Just over one invoice in ten had a price that differed from the agreed one.

During the review we also found a few individual discrepancies:

• An incorrect public holiday supplement had been invoiced.
• Several invoices stated only quantity 1 and a total amount. The price appendix is based on an hourly rate, so the price could not be checked.
• A service that was not in the price appendix had been invoiced. There was therefore no agreed price to compare with.
• A larger invoice lacked information on the number of hours. Calculated at the agreed hourly rate, the amount corresponded to a large number of hours. Despite repeated requests, no supplementary documentation was submitted.

Our overall assessment was that the supplier fundamentally applied the agreed price levels and met the requirements for quality, environment, staff and vehicles. The price discrepancies and the added addresses were mainly linked to shortcomings in documentation and traceability, not to systematically incorrect pricing.

What the municipality could do with the result

The report became a basis for dialogue with the supplier. The concrete remaining actions were:

• Request repayment of the public holiday supplement.
• Follow up the invoice without information on hours separately, since the item was assessed as material.
• Clarify how added addresses are to be handled and approved before they are invoiced, so that the price can be compared with the contract.
• Make sure an order number is on every invoice, so that the invoice can be linked to the order in the finance system.

The shortcomings did not affect the quality of the delivery or the validity of the contract. They should still be addressed. An order number on every invoice, approved addresses before invoicing and hours stated on every invoice allow the municipality to check price and order against the contract. This can be done through dialogue with the supplier and adjusted routines.

Read more about price and contract compliance as a service.

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