Contract compliance analysis
A contract compliance analysis is a structured check of whether each side of a contract is doing what the contract says. For a buyer, that mostly means comparing what a vendor billed and delivered with the agreed terms.
This entry is part of the Fairview Audit glossary. It explains the term in plain words so you know what to expect from a review.
Why it matters in a cost review
Contracts are signed once, but billing happens every month. Over time, the two can drift apart. A discount may stop being applied. A price may change without an amendment. A service may be billed after it ended. Nobody has to act in bad faith for this to happen.
A compliance analysis brings the contract and the billing side by side. It is also a good habit rather than a one-time event. Partner firms in our network cover this in supplier contract compliance work and in accounts payable audit work.
A plain-words illustration
A business signs a services agreement that includes a volume discount and a fixed rate for a set term. Months later, the vendor changes its invoice format. The discount line disappears, but nobody notices because the total looks familiar.
A compliance analysis would take the contract, find the discount clause, and test several invoices against it. The missing discount shows up as a gap between what was agreed and what was billed. The business can then raise it with the vendor, using the contract as support.
What it compares
In general, the review sets actual performance against the contract on points such as:
- invoices and payments against the agreed prices and payment terms
- delivery and service levels against the stated commitments
- amendments and change orders against the original terms
- discounts, credits and rebates against what was promised
- records against any rules the contract must meet
Typical findings include billing errors, agreed discounts not applied, services below the promised level, and amendments that were never written down or were unclear. [CONFIRM: a partner firm supplies and approves the list of areas it covers]
How it shows up in a review
A partner firm usually asks for the contract and every amendment, a payment history for each vendor, and invoices with supporting data. Firms often pick invoices by sampling, and you stay involved as the data is gathered and findings are shared. After that, the parties agree how to approach corrections with the vendor.
Your own team knowledge helps. A list of issues you have already spotted and contacts for your team and the vendor save time. If a contract also involves a lease, the pre-lease commencement analysis entry describes a related check at the start of a term.
Common mistakes
- Reviewing invoices without the contract. An invoice alone cannot show whether a charge was agreed.
- Using only the original contract. Amendments and side letters can change the terms.
- Testing too few invoices. A single month can miss a pattern.
- Assuming a long relationship means correct billing. Longstanding vendors still make errors.
- Skipping the follow-up. Findings need a plan for corrections, and the vendor may have its own view.
- Treating the analysis as legal advice. It checks billing against terms. Questions about rights and remedies belong with counsel. [VERIFY: confirm with counsel what remedies and time limits apply to billing disputes]
Note: This is a general description, and what a given review covers is set by the partner firm and your agreement with it.
Related terms and pages
Fairview Audit connects you with finance professionals and partner firms. The partner firm performs any review, and the engagement and fees are between you and the firm.
Tell us what you need reviewed. We match you by hand with an independent partner firm. You keep your existing vendors.Find out what you are overpaying.