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Legal Audits (Vol 3, Pt 4)

Patrick Lim
Partner at Raj, Ong & Yudistra

Thus far in this third volume of articles for our Legal Audits series, we have looked at 4 types of clauses that should be included during any contract review or audit.

In this article, we take a look at two other types of clauses which usually form the core of most agreements.

Obligations

When reviewing this item, you should consider the following:

  1. Review the obligations of the parties: Make sure that you understand the obligations of the parties under the contract and any conditions or requirements for performance.
  2. Confirm that the obligations are clear and realistic: Ensure that the obligations of the parties are clear and realistic, considering the resources and capabilities of the parties and the overall scope of the contract.
  3. Check for any unreasonable or one-sided obligations: Review the contract to ensure that it does not contain any unreasonable or one-sided obligations that are unfairly weighted in favor of one party.
  4. Consider any performance standards or requirements: Review any performance standards or requirements that are included in the contract and confirm that they are achievable and consistent with industry standards.

In summary, the goal of such provisions should be clear and realistic. This helps to ensure that the parties are able to meet their obligations under the contract and that the contract is fair and balanced.

Performance Standards or KPIs

When reviewing this item, you should consider the following:

  1. Review any performance standards or requirements: Make sure that you understand any performance standards or requirements that are included in the contract.
  2. Confirm that the standards are achievable: Ensure that the performance standards or requirements are achievable and consistent with industry standards, considering the resources and capabilities of the parties and the overall scope of the contract.
  3. Check for any unreasonable or one-sided standards: Review the contract to ensure that it does not contain any unreasonable or one-sided performance standards that are unfairly weighted in favor of one party.
  4. Take note of timelines and calculations: Make sure that the time and duration are clear and measurable. Carry out mock calculations to ensure that the time line is determinable.
  5. Acceptance: Ensure that there are definite acceptance parameters to prevent disputes on deliverables and performance indicators.
  6. Consider any consequences for non-performance: Review the provisions related to consequences for non-performance and confirm that they are fair and reasonable.

This helps to ensure that the parties are able to meet their obligations under the contract and that the contract is balanced. It also ensures that the parties do not inadvertently breach agreements.

In the next article, we will look at “compensation” and “indemnification”.

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