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Wednesday, April 25, 2018 AuditAuditOver the years the concept and scope of audits have changed. In the past most contract audits involved money. Have you paid the other party what you were required to pay them? For items that required reimbursement, do the records exist that verify the cost to be reimbursed? Audits have migrated from a pure financial focus into information security such as cyber security, data protection, and data privacy. They have also been used to understand and help manage performance risk including third party risk, operational risk, and crisis management such as when a force majeure occurs. Internal audits may be to ensure compliance with laws or regulation. Individual issues such as quality problems may also warrant an audit or inspection of the premises where the product is made. The starting point in any audit provision is to establish the requirement that the company keep and maintain records for a specific period of time so they can be audited and verified. Then you need the contract to grant you audit rights. When audit rights language is negotiated, the typical things that are negotiated are:1.Who can perform the audit?2.When or how often it can the audits be done?3.The scope or extent of the audit.4.What records will or wont be made available for audit.5.Who pays for the cost of the audit and the cost of any additional audits that may be required? Audit rights are something that Suppliers are extremely reluctant to provide, as they are concerned about the information that the Buyer could discover. You should expect that Suppliers may:1)Requireaudits be performed by to independent auditor, rather than Buyer personnel.2)Have agreement or approval over the auditor that will be used.3)Have the scope of the audit be restricted to only that information that is required to comply with the agreed audit scope.4)Limit the frequency of audits as much as possible to reduce the disruption.5)Want the Buyer to pay for all costs associated with the audit.6)Want significant notice periods prior to the conduct of an audit. What should be the notice period? The supplier may want a reasonable notice period. The problem with that is the parties may not agree upon what is reasonable.In fact, what is reasonable will always be dependent on what is being audited or inspected. For example to verify the status of work-in-process, the requirement could be immediate. The same immediate right makes sense if you were having a quality problem. An audit of financial records would require a longer period and should take into account the suppliers financial calendar. If you have a safety problem, or a data breach, you want the right to audit immediately. For thing such as financial risk of a supplier you could have the audit be once a year of more frequently if there is deterioration in their financial position. In establishing specific notice periods, If the Supplier can provide you what you need immediately, I want the immediate right to audit. If it is a major issue that may require preparation time, I want a maximum of (10) days. For other situations I want a maximum period of thirty (30) days. These should be expressed as calendar days as that will create the shortest period. Limitations on your right to audit may add to either your cost or risk. In negotiating the cost of an audit I want the results to be categorized as either: Acceptable, Minor Problems Found, or Unacceptable. If the Audit discloses acceptable performance, the Buyer will pay the full cost. If the audit discloses only minor problems, the buyer will pay for the cost of the audit and the parties will share the cost of a subsequent audit to ensure the problems have been corrected. If the audit results are classified as unacceptable, the Supplier must pay for the cost of the Audit and any subsequent audits to ensure compliance is met.Posted byJackat12:03 PM25 comments: Email ThisBlogThis!Share to TwitterShare to FacebookShare to PinterestOlder PostsHomeSubscribe to:Posts (Atom)Total PageviewsBlog Archive2018(1)April(1)Apr 25(1)Audit2017(1)January(1)Jan 15(1)2016(3)December(1)Dec 16(1)February(2)Feb 18(1)Feb 11(1)2014(31)November(1)Nov 01(1)July(4)Jul 23(1)Jul 21(1)Jul 14(1)Jul 06(1)June(2)Jun 21(1)Jun 08(1)May(5)May 29(1)May 26(1)May 23(1)May 14(1)May 01(1)April(6)Apr 24(1)Apr 13(1)Apr 10(1)Apr 07(1)Apr 04(1)Apr 03(1)March(1)Mar 24(1)February(5)Feb 25(2)Feb 17(1)Feb 13(1)Feb 05(1)January(7)Jan 30(1)Jan 26(1)Jan 21(2)Jan 09(1)Jan 03(1)Jan 02(1)2013(44)December(2)Dec 10(1)Dec 03(1)November(3)Nov 30(1)Nov 13(1)Nov 07(1)October(4)Oct 28(1)Oct 11(1)Oct 10(1)Oct 08(1)September(4)Sep 26(1)Sep 20(1)Sep 07(1)Sep 01(1)August(4)Aug 30(1)Aug 13(1)Aug 12(1)Aug 08(1)July(5)Jul 28(1)Jul 22(1)Jul 12(1)Jul 09(1)Jul 08(1)June(3)Jun 23(1)Jun 12(1)Jun 09(1)May(4)May 27(1)May 13(1)May 04(1)May 02(1)April(5)Apr 23(1)Apr 19(1)Apr 16(1)Apr 11(1)Apr 01(1)March(4)Mar 25(1)Mar 14(1)Mar 10(1)Mar 03(1)February(3)Feb 25(1)Feb 22(1)Feb 10(1)January(3)Jan 18(1)Jan 11(1)Jan 06(1)2012(142)December(4)Dec 30(1)Dec 17(1)Dec 14(1)Dec 10(1)November(3)Nov 17(1)Nov 13(1)Nov 05(1)October(11)Oct 29(1)Oct 23(1)Oct 22(1)Oct 18(1)Oct 12(1)Oct 10(1)Oct 07(2)Oct 02(3)September(7)Sep 28(1)Sep 21(2)Sep 18(1)Sep 14(1)Sep 09(1)Sep 03(1)August(8)Aug 28(1)Aug 27(1)Aug 22(1)Aug 16(1)Aug 14(1)Aug 13(1)Aug 09(1)Aug 06(1)July(12)Jul 31(1)Jul 24(1)Jul 23(1)Jul 20(1)Jul 18(1)Jul 17(2)Jul 12(1)Jul 10(2)Jul 05(1)Jul 03(1)June(16)Jun 26(2)Jun 25(1)Jun 22(2)Jun 21(2)Jun 19(3)Jun 15(1)Jun 14(1)Jun 12(2)Jun 05(1)Jun 01(1)May(11)May 29(2)May 26(1)May 25(1)May 20(1)May 17(1)May 16(1)May 15(1)May 14(1)May 10(1)May 02(1)April(11)Apr 29(1)Apr 27(1)Apr 25(1)Apr 24(2)Apr 22(3)Apr 13(1)Apr 09(1)Apr 04(1)March(18)Mar 30(1)Mar 29(2)Mar 28(2)Mar 27(1)Mar 26(3)Mar 23(1)Mar 22(1)Mar 21(1)Mar 16(1)Mar 12(1)Mar 07(1)Mar 06(1)Mar 05(1)Mar 01(1)February(19)Feb 24(1)Feb 23(1)Feb 22(1)Feb 21(1)Feb 17(2)Feb 16(1)Feb 15(1)Feb 14(1)Feb 13(1)Feb 10(1)Feb 09(1)Feb 08(1)Feb 07(1)Feb 06(1)Feb 03(1)Feb 02(1)Feb 01(2)January(22)Jan 31(1)Jan 30(1)Jan 27(2)Jan 25(1)Jan 24(1)Jan 23(1)Jan 19(1)Jan 18(1)Jan 17(1)Jan 16(1)Jan 13(1)Jan 12(1)Jan 11(1)Jan 10(1)Jan 09(1)Jan 06(1)Jan 05(1)Jan 04(1)Jan 03(1)Jan 02(1)Jan 01(1)2011(353)December(21)Dec 27(1)Dec 23(2)Dec 22(1)Dec 21(1)Dec 20(1)Dec 19(2)Dec 16(1)Dec 15(1)Dec 14(1)Dec 13(1)Dec 12(1)Dec 10(1)Dec 09(1)Dec 08(1)Dec 07(1)Dec 06(1)Dec 05(1)Dec 02(1)Dec 01(1)November(26)Nov 30(1)Nov 28(3)Nov 25(1)Nov 23(1)Nov 22(1)Nov 21(1)Nov 18(2)Nov 17(1)Nov 16(2)Nov 15(1)Nov 14(2)Nov 13(1)Nov 11(1)Nov 10(1)Nov 09(1)Nov 08(1)Nov 07(1)Nov 04(1)Nov 03(1)Nov 02(1)Nov 01(1)October(25)Oct 31(1)Oct 28(1)Oct 27(2)Oct 26(2)Oct 25(1)Oct 24(1)Oct 22(1)Oct 21(1)Oct 20(2)Oct 19(1)Oct 18(1)Oct 14(1)Oct 13(1)Oct 12(2)Oct 11(1)Oct 10(1)Oct 07(1)Oct 06(1)Oct 05(1)Oct 04(1)Oct 03(1)September(23)Sep 30(1)Sep 29(1)Sep 28(1)Sep 27(1)Sep 26(1)Sep 23(2)Sep 22(1)Sep 21(1)Sep 20(1)Sep 19(1)Sep 16(1)Sep 15(1)Sep 14(1)Sep 13(1)Sep 12(2)Sep 09(1)Sep 08(1)Sep 06(1)Sep 02(1)Sep 01(2)August(26)Aug 31(1)Aug 30(1)Aug 29(1)Aug 25(1)Aug 24(3)Aug 23(1)Aug 19(1)Aug 18(1)Aug 17(2)Aug 16(1)Aug 15(2)Aug 12(1)Aug 11(1)Aug 10(1)Aug 09(1)Aug 08(1)Aug 06(1)Aug 04(1)Aug 03(1)Aug 02(1)Aug 01(2)July(23)Jul 30(1)Jul 22(1)Jul 20(2)Jul 19(1)Jul 18(1)Jul 17(1)Jul 14(2)Jul 13(1)Jul 12(1)Jul 11(1)Jul 09(1)Jul 08(2)Jul 07(1)Jul 05(3)Jul 04(1)Jul 02(2)Jul 01(1)June(5)Jun 30(1)Jun 29(2)Jun 28(2)May(1)May 04(1)April(47)Apr 11(21)Apr 08(9)Apr 07(8)Apr 06(4)Apr 05(3)Apr 04(2)March(47)Mar 25(2)Mar 24(4)Mar 23(4)Mar 22(7)Mar 21(2)Mar 17(2)Mar 16(2)Mar 15(1)Mar 14(2)Mar 13(1)Mar 11(3)Mar 10(2)Mar 09(4)Mar 08(1)Mar 07(3)Mar 05(1)Mar 04(1)Mar 03(2)Mar 02(1)Mar 01(2)February(50)Feb 25(1)Feb 24(1)Feb 22(3)Feb 21(2)Feb 18(2)Feb 17(1)Feb 16(2)Feb 15(3)Feb 14(2)Feb 13(2)Feb 12(3)Feb 11(4)Feb 10(5)Feb 09(3)Feb 08(1)Feb 07(1)Feb 06(1)Feb 04(1)Feb 03(3)Feb 02(5)Feb 01(4)January(59)Jan 31(3)Jan 30(2)Jan 29(2)Jan 28(2)Jan 27(5)Jan 26(5)Jan 25(5)Jan 24(1)Jan 23(2)Jan 21(2)Jan 20(1)Jan 19(1)Jan 18(3)Jan 17(4)Jan 14(3)Jan 13(2)Jan 12(3)Jan 11(6)Jan 10(1)Jan 07(2)Jan 06(1)Jan 05(1)Jan 04(1)Jan 03(1)2010(45)December(44)Dec 22(1)Dec 21(1)Dec 20(6)Dec 19(4)Dec 17(4)Dec 16(5)Dec 15(3)Dec 14(5)Dec 13(3)Dec 12(4)Dec 10(1)Dec 09(1)Dec 08(1)Dec 07(1)Dec 06(1)Dec 03(1)Dec 02(1)Dec 01(1)November(1)Nov 29(1)About MeJackAfter a career managing contracts and procurement organizations and after thousands of negotiations, there are a number of things I learned that I want to share with individuals that want to negotiate procurement contracts. 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