Are you leaving money on the table with your NTE (Not to Exceed) Contracts? How you can reduce costs for your construction and maintenance contracts.

Most all companies execute contracts as NTE or Not to Exceed but are you getting the most from these contracts? Many buyers and purchasing managers do not truly understand the differentiation between an NTE or lumpsum/fixed price contract when they commit the company and contractor to these T&Cs. In addition, many project managers and invoice approvers are content if an invoice simply matches the amount of the purchase order or contract amount.

Many of these contracts usually end up getting billed the full amount of the contract without a proper challenge process. A properly written NTE contract allows for the customer to ask for (and compel) the contractor or vendor to properly support their invoicing with backup for: labor, equipment, materials, and subcontractor costs.

All companies can do a simple check to see if their project managers and invoice approvers are leaving money on the table. Creating a dashboard that highlights the number of NTE contracts that end up getting billed and paid the full amount is a great litmus test for how your team is managing these types of projects. This is a good starting point to understand if you can reduce costs on your construction and maintenance contracts. Few true NTE contracts should ever be billed the exact amount. If you are nearing 100% that are billed and paid the full amount, you are leaving money on the table.

Check back next week for my next topic:

Who is responsible for competitive bidding in your organization? Insights for stakeholders and auditors.