Quick Tip #14: When do you need to audit without notice?
A customer’s right to audit the supplier’s compliance with the terms of the contract can be a very helpful and practical way to determine any issues of non-compliance that need to be addressed, without having to resort to more onerous remedies and potentially acrimonious dispute resolution process. However, audits can be disruptive and invasive and as such it is conventional to set sensible rules for the frequency and notice period to apply to any audit.
Typically, parties will agree to a 30 day notice period before any audit can be conducted. This generally is reasonable but be careful to carve out circumstances where emergency audits or investigation activity is necessary. These circumstances include where the customer has a suspicion of:
fraudulent activity;
breach of law by supplier personnel; and
any security incidents or vulnerability.
Each of these circumstances pose a threat which could cause extensive, and possibly irreparable, damage to a customer’s organisation. In any of these circumstances, the customer should have the right to immediately initiate the audit or investigation activity to mitigate the extent of the damage.