Why do contractors give retrospective discounts?

Retrospective discounts are a mechanism that can and are used to mask the true delivery cost of supplies.

It is not possible always to correctly attribute bulk discounts to individual product lines without constant and costly audits. This is not a practical solution.

Contractors can negotiate with their suppliers to deliver at the true cost price. Suppliers have to add cost on if they are then required by the contractor to allow the contractor to pass discounts back to their clients.

Trading performance should be evaluated to ensure that the cost of supplies charged in any period reflect the true net costs and are not affected by discounts attributed to a previous period.

Tip

Ensure that the contract with the contractor clearly states that all supplies are priced at the true net cost at the point of delivery. This will enable the client to assess the true costs, proper evaluation and audit of purchasing and trading performance.