What is the difference between a contract audit and a contract review?

1 What is a contract audit?

A contract audit is a formal and independent examination of a vendor's performance, compliance, and financial records related to a contract. The purpose of a contract audit is to verify that the vendor is meeting the contractual obligations, delivering the agreed-upon results, and charging the correct prices. A contract audit can also identify any risks, errors, or fraud that may affect the contract. A contract audit is usually conducted by a third-party auditor or a specialized internal team.

2 What is a contract review?

A contract review is a less formal and more collaborative process of evaluating a vendor's contract and performance. The purpose of a contract review is to assess the quality, effectiveness, and value of the vendor's services or products, and to identify any areas for improvement, renegotiation, or termination. A contract review can also help to resolve any disputes, issues, or complaints that may arise during the contract. A contract review is usually conducted by the contract manager or the project manager, with input from the vendor and other stakeholders.

3 How do they differ?

The main differences between a contract audit and a contract review are the scope, frequency, method, and outcome. A contract audit covers the entire contract and all its aspects, and is performed periodically. On the other hand, a contract review focuses on specific aspects or issues that are relevant to the current situation and is conducted more frequently. Additionally, a contract audit is based on objective and quantitative data such as invoices, receipts, reports, and metrics; whereas a contract review is based on subjective and qualitative data such as feedback, surveys, interviews, and observations. Finally, a contract audit results in a formal report that summarizes the findings, recommendations, and actions; while a contract review results in an informal discussion that leads to an agreement, a plan, or a decision.

4 When to use them?

Both contract audits and contract reviews are important tools for vendor management, but they serve different purposes and have different benefits. A contract audit should be used to ensure the vendor is complying with the contract terms, verifying the quality, quantity, and timeliness of services or products, confirming the accurate and reasonable pricing, detecting risks or errors that may affect the contract performance or relationship with the vendor, and improving transparency and trust between you and the vendor. A contract review should be used to evaluate vendor performance and satisfaction levels, adjust the contract scope, terms, or expectations to reflect changing needs or goals, negotiate the contract price or duration, resolve disputes or complaints that may arise during delivery, and strengthen communication and collaboration with the vendor.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?