Why 11% of a contract's value is lost after signature
A successful negotiation sets prices, discounts and terms. What remains is to check that they are applied, invoice after invoice, throughout the life of the contract.
Negotiated value, not always realised
A framework agreement is measured by its terms: price schedule, discount tiers, year-end rebates, free-shipping threshold, indexation formulas. They are only worth something if they show up on the invoices. Yet between signature and payment the chain is long: the supplier configures its tools, the buyer places orders, accounting pays, and nobody rereads the contract line by line.
The literature speaks of value leakage. According to a study by World Commerce & Contracting carried out with Ironclad, organisations lose on average 11% of the total value of their contracts after signature. Ardent Partners observes for its part that around 21% of negotiated savings are never realised.
Where value is lost, and why nobody sees it
Discrepancies cluster in five areas: a unit price left at the old level after an amendment, a tiered discount not triggered, a year-end rebate calculated on too narrow a base, shipping or packaging billed although the contract excludes them, an indexation applied with the wrong index or on the wrong date. The last two mechanisms are detailed in the articles on discounts, tiers and year-end rebates and on price indexation clauses.
There is almost never any fraud. The buyer negotiates but does not see the invoices. Accounting sees the invoices but does not know the detail of the contract. Automatic control matches order, receipt and invoice, not the contract. And each discrepancy is too small to trigger an alert, while its repetition is not.
A worked example
Take a company that buys €50M a year under framework agreements from around ten suppliers. If only 1% of those purchases is billed with a discrepancy against the contract, that represents €500,000 a year.
| Period | Purchases under contract | 1% discrepancy |
|---|---|---|
| 1 year | €50M | €500k |
| 3 years | €150M | €1.5M |
| 5 years | €250M | €2.5M |
For a company with a 4% net margin on €200M of revenue, that is €8M, these €500,000 a year represent more than 6% of additional profit. The simulator lets you redo this calculation with your own figures.
Taking control back
Some signals justify checking invoices against the contract: several amendments with no documented update at the supplier, a price increase nobody can trace to a clause, year-end rebates paid without a calculation statement, ancillary costs on the rise, a change of tool or contact at the supplier, large purchases on items missing from the price schedule (see off-contract purchasing). None of them proves a discrepancy, all of them justify a look.
- Prioritise contracts by purchasing volume, complexity of terms and date of the last check.
- Match invoices to the contract in force on their date: last year's contract is not today's.
- Track a line compliance rate, the discrepancy by supplier and the share of off-contract purchases.
- Have the tariff corrected at source, so that the discrepancy does not repeat on the next invoices.
- Go back over the recoverable period, which is five years between traders (the five-year limitation period).
Comparing a contract with thousands of invoice lines is precisely what neither the accounting audit nor the ERP does: the article on accounting audit and contract audit explains the difference.
Frequently asked questions
Do these discrepancies mean our suppliers are unreliable?
Rarely. The causes are almost always ordinary: a tariff not updated, a discount badly configured, a calculation basis misunderstood. What matters is that nobody systematically checks that the contract is applied, on the supplier side as on the customer side.
Does my ERP not already detect these discrepancies?
An ERP matches an invoice to an order and a goods receipt. As a rule, it does not check each line against the price schedule, the discount tiers or the indexation formulas of the contract. It closes the accounting loop, not the contractual one.
Do we need to audit every supplier?
No. You start with the framework agreements that weigh most in volume and those with the most complex terms (tiers, year-end rebates, indexation). They concentrate most of the stakes.
References: World Commerce & Contracting and Ironclad, study on post-signature value leakage (worldcc.com). Ardent Partners, studies on contract and procurement management (ardentpartners.com).
