A $50 million electrical materials distributor contract allowed for a tiered, declining markup based on the supplier’s actual cost. However, this supplier used a forecasted “replacement cost” instead of actual cost. They then applied a sales margin (using divide-by methodology) instead of a cost-plus markup (using multiplication methodology). In addition, the supplier’s system could not automatically apply the correct markup and had to manually adjust for higher cost items.
Outcomes
Revenew’s Contract Language Risk assessment team identified issues totaling $1.4 million, and negotiated a $1 million settlement for our client because the contract language was not as clear as it could have been. We then provided best practices language which was included in a contract amendment immediately following the audit settlement to alleviate any future issues.