Patrick Lim
Partner at Raj, Ong & Yudistra
Up to this point in this series on legal contract audits, we have covered things to consider when carrying out audits, the steps involved, the risk in the absence thereof, and personal liabilities that the management of a company may be exposed to. Failing to conduct regular contract audits can expose a company to legal challenges, fines, and damage to its reputation, which can have significant consequences for the company’s longevity.
It is clear that regular legal contract audits are an important aspect of risk management and compliance for companies, and can help to ensure that the company is in compliance with laws and regulations and that its contracts are optimised for its business needs. This would help to ensure its long-term viability.
To cap off what we have learned from the previous articles, here is a suggested ranking (of which we know are obvious, but it is always good to be reminded) of the types of contracts that a company may want to prioritise for review:
- Key contracts: These are contracts that are critical to the operation of the company and that have a significant impact on the company’s financial performance or reputation. Examples of key contracts may include contracts with major customers or suppliers, contracts related to the company’s intellectual property, and contracts related to the company’s financing.
- High-risk contracts: These are contracts that pose a significant risk to the company if they are not properly managed. Examples of high-risk contracts may include contracts that involve the use of sensitive data, contracts with terms that are unfavorable to the company, and contracts with third parties that have a history of litigation or regulatory violations.
- Standard contracts: These are contracts that are used frequently by the company and that have standard terms and conditions. Examples of standard contracts may include contracts for the purchase of goods or services, contracts for the rental of equipment, and contracts for the use of intellectual property.
- Low-risk contracts: These are contracts that pose a low risk to the company if they are not properly managed. Examples of low-risk contracts may include contracts for the purchase of low-value goods or services, or contracts that have minimal impact on the company’s operations.
Overall, it is important for companies to prioritise the review of key contracts and high-risk contracts, as these contracts are likely to have the greatest impact on the company’s operations and financial performance. Standard contracts and low-risk contracts may also be important to review, but may not require as much attention as key contracts and high-risk contracts.
However, it is important to note that legal contract audits are just one aspect of risk management and compliance, and that there are many other factors that can impact the longevity of a company. These may include factors such as the company’s financial health, its competitive position in the market, and its ability to adapt to changing market conditions.