This contract tip is about audit provisions.
Audit provisions permit one party to review and inspect information about the other party.
Most audit provisions include these seven concepts. How you word each of these elements depends on whether you are likely to be the auditor or the auditee.
1. What is the scope? - You can narrow the scope to just review payment calculations or broaden it to review anything and talk to anyone related to the agreement.
2. Who can perform? - Some allow the other party to conduct the audit. Others limit permission to an independent auditor under an NDA with the auditee.
3. How often? - You could say as often as the auditor wants or limit it to once per year.
4. When? - Some have no timing restrictions, while others say only during regular business hours.
5. How much notice? - You can allow any time (so surprise audits) or only with 30 days’ notice.
6. What are the consequences? - You may require the auditee to pay any underpayment plus audit cost and have more frequent audits. Or you can require both sides to pay any difference found.
7. Does the audit right survive termination? - In some agreements, it ends with termination, while in others it may survive indefinitely. I typically want the audit survival to last as long as any regulatory requirements applicable to the contract or are other ongoing obligations.
Would you add any other things to this list?
