OK, I did this much of it, and this is what my output was... What do you get if you just echo the variables? That's a good place to start.
$userfile="C:\Documents and Settings\drabe\Desktop\FRFC-22_v5.doc";
$strStrip = str_replace('\','/',$userfile);
$finalContractName = basename($strStrip);
echo $strStrip."<BR/>";
echo $finalContractName;
// This is what my browser outputs.
C:/Documents and Settings/drabe/Desktop/FRFC-22_v5.doc
FRFC-22_v5.doc
I did notice in the code you posted, you didn't have your semi-colon at the end of your definition of the $userfile variable. Typo? If not, make that correction and retry it.