Reviewing invoices a bit more closely is always a good place to start when commodity prices begin to drop. For contractors, this means making sure that all of your costs and expenses are properly provided on a work order and invoice. Alternatively, companies hiring contractors should make sure that these costs and expenses are properly justified and that you are not overpaying.

One way to remedy suspected underpayments or overpayments is to conduct an audit. While it may not be a hot topic of discussion in negotiating commercial contracts, ensuring that the audit provision of your contract clearly defines the rights of each party to review costs and payments made can provide a helpful solution when looking to cut costs and recoup any overpayments made to contractors.

The audit provision in any commercial contract should clearly define how often a party is allowed to conduct an audit, the books and records that they are allowed to review, what parties they are allowed to audit, who is able to carry out the audit, who pays for the audit, and the record retention obligations of the contractor. From the company’s perspective, we always insist that audit rights extend to not only the contractor on the other side of the contract but its subcontractors as well.

For additional guidance on audit provisions or a review of the audit provisions in your contracts, contact RR&A.