From feast to famine – time to refocus

BLOG6th Mar 2015

We are experiencing tough times in oil and gas at the moment. The oil price is putting the squeeze on margins; projects are being put on hold, and exploration is viewed currently as an unnecessary cost, rather than a means of generating future revenues.

In challenging times, many businesses focus on cost minimisation. During the feast, the emphasis may have drifted away from cost control, with the main focus being on delivery. But now that we have moved into a period of relative famine, is this the time to refocus and re-energise efforts to bring costs back into line?

One area where costs can creep up is contract expenditure, where supplier billing may not be as accurate as it could be. This type of inaccurate billing may not always be detected by standard invoice approval processes. Taking one or two months in isolation, the cost may not be material, but left unchecked this can develop into a more-significant amount.

Our Contract Audit service can provide you with the support to review your key contracts to ensure adherence with the terms and conditions by:

  • Identifying the key contracts which present the highest risk. These may not necessarily be the contracts with the highest spend, but those which cover numerous service lines, such as hire of vessels, different grades of offshore and onshore labour, equipment rental and other associated costs.
  • Auditing the supplier billing against invoices to ensure accuracy.
  • Identifying billings that are not in accordance with contract terms and establishing the underlying reasons for the occurrence of these errors.
  • Providing advice on process improvements to prevent recurrence of errors. This may relate to approval and authorisation processes, billing presentation or supporting documentation.
  • Identifying areas of the contract where wording might be ambiguous, leading to misunderstandings between the parties and developing contract wording that brings improved clarity to the agreement.
  • Highlighting clauses within the remuneration section of the contract where there is a lack of transparency around rate calculation and suggest amendments to improve clarity.

Generally, contracts are written with a right to audit clause included as standard.

Are you, as a company, making full use of your contract rights to examine what has been spent through the contract?

If not, this may be the perfect time to review your key contracts to gain assurance that the goods and/or services are being provided in line with agreed terms and conditions.

To ensure your company is fully focused on receiving maximum value for money from the contracts you have in place, regular consideration should be given to exercising your right to undertake a contract audit.

For more information please don’t hesitate to contact us.