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4 Things to Know About Compliance


For companies engaged in contracting, understanding compliance is critical to survival. High value contracts, in particular, will be subjected to very strict oversight and scrutiny. Obviously, failing to comply with contract terms could mean lost business for a company, but there may be legal consequences and hefty financial penalties as well. And, compliance is not always about an evaluation of an external party's actions, or lack thereof.

Companies should also engage in internal compliance reviews to ensure their operations are on track. This will allow a company to identify and rectify potential issues in the event that an external contracting partner decides to conduct a review of the contracting progress. Regardless of which side initiates the process, there are a few things that everyone must know about the purpose and scope of compliance.

Cost Recovery

The primary reason companies are concerned about compliance is because of the inevitable impact that it has on the bottom line. Inefficient contracting may lead to redundant ordering, excessive supply lines, and overpayments. If no one is paying attention to incoming goods and supplies and all of the outgoing funds, there can be a steady leakage of dollars. Even a minor stream can eventually sink an operation.

Thus, monitoring compliance is crucial to ensuring appropriate cost containment. It may not be possible to recover sums that have already been paid out that perhaps should not have been, or worse, have altogether disappeared without certainty as to where or how it happened, but realizing that it is happening will allow the team to make the requisite changes to prevent any further drainage.

Process Improvement

Inefficient contracting can obviously be costly, and it is important to figure out which facets of the contracting process are working and which are in need of revision. Expecting and extending a seamless contracting process will help ensure that there is a mutually beneficial relationship that both parties will want to continue. This means that every link in the contracting chain must be intact, from the initial negotiations until the last contractually stipulated action is performed.

A compliance review enables the personnel involved in contract management to evaluate the existing processes and identify potential gaps. In the beginning, it may be necessary to do this several times per year, as slight tweaks along the way can make a huge difference in how an entire project will go. Eventually, the process may become so automated, with very little tuning and refinement necessary, but companies will never get to this point if they are unwilling to spend the time analyzing and improving their existing infrastructure.

Risk Management

Risk is inherent in virtually all business relationships, and contracting certainly isn’t an exception. Internal compliance reviews are crucial to identifying risks and taking action to mitigate those risks. With contracting, this may involve a contracting partner committing minor, subtle abuses, economic forces at play that could negatively impact an arrangement, or internal lapses that are bound to create problems in the long run, among countless other scenarios.

There is no way to predict or prepare for all risks, but periodically examining whether your company and your company’s contracting partners are acting appropriately will certainly help. It is never a good idea to wait until an issue actually becomes an issue to take steps to combat it.

The Audit

A full compliance audit usually entails an extremely detailed investigation into whether a company is abiding by previously agreed upon terms and conditions and/or applicable rules and regulations. This will likely involve site inspections, document review, and data verification. This may seem like pesky micromanagement, but companies should view it as an opportunity to demonstrate their value.

Obviously, companies that hold themselves to high standards and engage in serious inward reflection won’t be overwhelmed when this happens, as their internal reviews should serve as preparation for the real deal.

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