Purpose of the lesson

Identify gaps between contracted and actual performance, assess the impact of non-compliance and develop a controlled corrective-action plan.

Practical outcome

By the end of this lesson, you must be able to:

• Identify non-compliance against contract and SLA deliverables.
• Verify performance gaps using reliable evidence.
• Determine the cause and operational effect of each failure.
• Rate the impact and priority of non-compliance.
• Select appropriate corrective measures.
• Develop and monitor a corrective-action plan.
• Manage notices, claims and escalation records.
• Verify and formally close corrective actions.

1. Gather the required information

Obtain:

• Signed contract and SLA
• Approved specifications
• Contract implementation plan
• Deliverables register
• Performance scorecards
• Delivery and service records
• Inspection and quality reports
• Customer complaints
• Claims and incident records
• Supplier correspondence
• Invoices and payment records
• Previous corrective-action plans
• Approved contract amendments
• Escalation and dispute procedures

Confirm that each requirement comes from the latest approved contract documentation.

2. Identify the contractual requirement

For each suspected failure, record:

• Contract or SLA clause
• Required deliverable
• Performance measure
• Target
• Due date
• Responsible supplier
• Required evidence
• Available remedy or escalation procedure

Requirement register

3. Compare actual performance with the requirement

Use verified information to establish the gap.

Performance gap = Required performance − Actual performance

Example:

• Required on-time delivery: 95%
• Actual on-time delivery: 88%

Performance gap = 95% − 88% = 7 percentage points

For quantities:

Quantity gap = Contracted quantity − Accepted quantity

For time:

Delay = Actual completion date or time − Required completion date or time

4. Create a non-compliance register

Record all confirmed and suspected cases.

Classify each case as:

• Compliant
• Minor non-compliance
• Major non-compliance
• Critical non-compliance
• Pending investigation

Do not classify a supplier as non-compliant before confirming the relevant requirement and evidence.

5. Validate the evidence

Check whether the evidence:

• Relates to the correct supplier and contract.
• Covers the correct reporting period.
• Uses the agreed measurement method.
• Is complete and accurate.
• Identifies authorised changes.
• Distinguishes supplier failure from an internal cause.
• Includes relevant acceptance or rejection records.
• Has not been counted more than once.

For example, a late delivery may result from the supplier, an incorrect organisational order date, a customer-requested change or an uncontrollable disruption. Establish responsibility before applying a remedy.

6. Determine the root cause

Investigate why the non-compliance occurred.

Ask:

1. What happened?
2. When and where did it happen?
3. Which requirement was not met?
4. What was the immediate cause?
5. What underlying process allowed it to happen?
6. Has the issue occurred before?
7. Which controls failed?
8. Who or what was affected?

Possible causes include:

• Insufficient supplier capacity
• Poor production planning
• Incorrect specifications
• Material shortages
• Inadequate quality controls
• Transport delays
• Weak communication
• Incomplete training
• Equipment failure
• Unauthorised contract changes
• Inaccurate performance data

Use a suitable method such as the Five Whys to move beyond the immediate symptom.

7. Assess the impact

Determine the impact on:

• Customers
• Product availability
• Production continuity
• Warehouse and transport schedules
• Quality and safety
• Cost and cash flow
• Regulatory compliance
• Contractual obligations
• Organisational reputation
• Supplier relationship

Record both the immediate and potential consequences.

Impact-assessment scale

8. Determine the risk priority

Assess both impact and likelihood of recurrence.

Risk score = Impact × Likelihood

Example:

• Impact: 4
• Likelihood: 3

Risk score = 4 × 3 = 12 — High priority

Use the organisation’s approved rating scale where one exists.

9. Apply immediate containment

Containment limits the immediate effect while the root cause is investigated.

Possible containment actions include:

• Isolate defective goods.
• Stop an unsafe service.
• Expedite a replacement delivery.
• Use an approved alternative supplier.
• Transfer available stock.
• Notify affected customers.
• Hold a disputed invoice for authorised review.
• Increase temporary inspection.
• Correct inaccurate information.
• Activate a continuity plan.

Containment controls the current incident but does not replace permanent corrective action.

10. Select corrective measures

Corrective action removes the cause of the confirmed non-compliance.

Possible measures include:

• Repair or replacement
• Revised operating procedures
• Employee training
• Additional quality checks
• Supplier capacity improvement
• Revised planning controls
• System corrections
• Preventive maintenance
• Improved reporting
• Service credits or authorised deductions
• Formal supplier warning
• Supplier-development plan
• Contractual escalation
• Termination where justified and authorised

Select measures that are:

• Proportionate to the impact
• Permitted by the contract
• Directed at the root cause
• Measurable
• Time-bound
• Assigned to an accountable person

11. Develop the corrective-action plan

Prepare a plan showing:

Include:

• Immediate containment
• Permanent corrective action
• Preventive action where relevant
• Resources required
• Responsible person
• Target date
• Success measure
• Reporting frequency
• Escalation point

12. Issue formal communication

Follow the contract’s notice requirements.

The communication should state:

• Contract reference
• Relevant clause
• Description of the non-compliance
• Supporting evidence
• Impact
• Required containment or correction
• Response deadline
• Escalation consequences
• Contact person

Use the specified address, format and delivery method. Retain proof that the notice was sent and received.

13. Manage claims and financial consequences

Where the contract permits:

1. Confirm the basis of the claim.
2. Calculate the value accurately.
3. Collect supporting evidence.
4. Submit the claim within the required period.
5. Record the supplier’s response.
6. Resolve disputed amounts through the approved process.
7. Apply authorised credits or adjustments.
8. Reconcile the final outcome.

Do not impose a penalty, deduction or termination outside the contract and authorised procedures.

14. Monitor corrective action

Track:

• Actions completed
• Due dates
• Evidence received
• Updated performance results
• Outstanding risks
• Supplier responses
• Escalations
• Customer effect

Conduct regular follow-ups according to the seriousness of the issue.

Corrective-action monitoring report

15. Verify effectiveness

Do not close the non-compliance merely because the supplier reports that the action is complete.

Verify that:

• The required action was implemented.
• Supporting evidence is valid.
• The root cause has been addressed.
• Performance has improved.
• The issue has not recurred during the monitoring period.
• No new risk was introduced.
• Relevant stakeholders accept the result.

If the action is ineffective, reopen or escalate the case.

16. Close the non-compliance

Before closure:

1. Confirm all actions are complete.
2. Verify effectiveness.
3. Resolve related claims or credits.
4. Update the supplier-performance record.
5. Communicate the closure.
6. Record lessons learned.
7. Obtain authorised sign-off.
8. Archive the complete record.

Practical task

You are provided with examples of contracts, SLAs, performance reports and supplier claims.

Complete the following:

1. Extract the relevant contractual deliverables and targets.
2. Compare actual results with the targets.
3. Identify and calculate the performance gaps.
4. Prepare a non-compliance register.
5. Validate the supporting evidence.
6. Determine the root cause of each material failure.
7. Rate the impact, likelihood and priority.
8. Recommend immediate containment.
9. Develop a corrective-action plan.
10. Prepare a formal non-compliance communication.
11. Monitor the proposed corrective measures.
12. Define how effectiveness and closure will be verified.

Required evidence

Include the following in your Portfolio of Evidence:

• Source contract and SLA
• Requirement register
• Performance-gap calculations
• Non-compliance register
• Supporting evidence review
• Root-cause analysis
• Impact and risk ratings
• Containment recommendations
• Corrective-action plan
• Formal notice or communication
• Claim or financial-impact record, where applicable
• Corrective-action monitoring report
• Effectiveness-verification and closure record
• Completed observation checklist
• Learner declaration of authenticity

Competence checklist

Lesson Summary

To manage non-compliance, identify the applicable contract requirement and compare it with verified actual performance. Calculate and record the gap, investigate its root cause, and assess its effect on customers, operations, cost, quality, and compliance. Rate the priority of the failure, contain its immediate consequences, and develop a time-bound corrective-action plan. Follow contractual notice, claims, and escalation procedures, monitor implementation, and verify that performance has improved before formally closing the matter.