Contract Compliance

During the post-award phase, it is important to ensure that contract conditions and terms are met, but it is also critical to take a closer look for items such as unrecorded liabilities, under-reported revenue or overpayments. If these items are overlooked, margin may be negatively impacted. A contract compliance audit will often commence with an opportunity review to identify the highest risk areas. Having a dedicated contract compliance (and/or governance) program in place has been shown to result in a typical recovery of 2-4% and sometimes as high as 20%.

Current thinking about contract management in complex relationships is shifting from a compliance “management” to a “governance” perspective, with the focus on creating a governance structure in which the parties have a vested interest in managing what are often highly complex contractual arrangements in a more collaborative, aligned, flexible, and credible way. In 1979, Nobel laureate Oliver Williamson wrote that the governance structure is the “framework within which the integrity of a transaction is decided.” He further added that “because contracts are varied and complex, governance structures vary with the nature of the transaction.”.

A collaborative governance framework has four components:

• A relationship management structure (how the parties work together to make both day to day operational decisions as well as strategic decisions)
• A joint performance and transformation management process designed to track the overall performance of the partnership
• An exit management plan as a controlling mechanism to encourage the organizations to make ethical, proactive changes for the mutual benefit of all the parties.
• Compliance to special concerns and regulations, which include the more traditional components of contract compliance