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Notices & Audits - Whaat?!?

February 20, 2016

Some contracts may have a provision called 'Notices and Audits'.  Fully negotiated contracts should pertain clauses which covers both Notices and Audits.  The Notice clause may read:

    "All notices here-under shall be in writing and shall be given by
Registered or Certified mail, return receipt requested, or by telex or telegraph (prepaid), at the respective addresses herein above set forth..."

Why is giving 'notice' important?  If any of the parties to the agreement wants to exercise or decline an option for additional years or subsequent product.  Or perhaps one of the parties has intention to suspend the term of the agreement or a breach of the contract has occurred.

If proper 'notice' is not given to the other party, they can simply choose to ignore improper notice.  If the 'notice' is defective, the receiving party is not contractually obligated to comply or answer.

Auditing is another headache for everyone involved and of course no one wants to be audited.  'Notice' must also be given if  the complaining party questions or disputes any statement.  Your contract should contain a clause in the event of any dispute.  The clause should state that the complaining party 'shall have the right to audit the books and records of  Company, no more than once annually, upon reasonable written notice with respect to all matters here-under. Audits shall be performed during business hours at...'

Of course Companies don't want to be audited, but find that if it's a necessity, that it must be conducted by a Certified Accountant during business hours at the complaining party's sole cost.  The company will also seek to disqualify an auditor if they have audited the same company for a different person before.

These provisions protect all parties involved in the agreement and insures payment, performance and accountability for everyone.

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