Why do contractors give retrospective discounts?

Retrospective discounts are a mechanism that is 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, clients should not be drawn into arrangements with contractors or suppliers where goods are not supplied at the true net price at the time of delivery. 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

1. 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.
2. Avoid entering into a Purchase Account Contract where contractors charge for all supplies. Insist upon a Consumption Account Contract. This is an arrangement where the contractor owns all supplies and stocks and only charges for goods consumed.