Contract Analysis - Reference Guide

Security Level:
Contract Analysis
Performing a Contract Analysis
A basic reference guide www.huawei.com
HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential

What is a Contract?
Overview
 Origin and Scope
 Contractual Elements
 Formation
 Affirmative defenses
Origin and Scope
A contract is an agreement entered into voluntarily

by two parties or more with the intention of
creating a legal obligation, which may have
elements in writing, though contracts can be made
orally.
The remedy for breach of contract can be
"damages" or compensation of money.
HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 3

Origin and Scope
Both of these remedies award the party at loss the

"benefit of the bargain" or expectation damages,
which are greater than mere reliance damages, as in
promissory estoppel.
The parties may be natural persons or juristic persons.
A contract is a legally enforceable promise or
undertaking that something will or will not occur.
The word promise can be used as a legal synonym for
contract, although care is required as a promise
may not have the full standing of a contract, as
when it is an agreement without consideration.

Elements
Elements of a Contract are:
• Offer and Acceptance
• Intention to create legal relations
• Considerations

Offer and Acceptance
There is a presumption for commercial agreements

that parties intend to be legally bound (unless the
parties expressly state that they do not want to be
bound, like in heads of agreement)
When reviewing a contract – the court will look at the

intent of the parties at the outset of the
relationship, and base any rulings on said intent.

Consideration
Consideration is something of value given by a promissor

to a promisee in exchange for something of value given
by a promisee to a promissor. Typically, the thing of
value is a payment, although it may be an act, or
forbearance to act, when one is privileged to do so.
Consideration consists of a legal detriment and a bargain.

A legal detriment is a promise to do something or refrain
from doing something that you have the legal right to do,
or voluntarily doing or refraining from doing something,
in the context of an agreement.

Consideration
A bargain is something the promissor (the party making

promise or offer) wants, usually being one of the legal
detriments.
The legal detriment and bargain principles come together

in consideration and create an exchange relationship,
where both parties agree to exchange something that
the other wishes to have.

Formation
In addition to the elements of a contract:
• A party must have capacity to contract;

• The purpose of the contract must be lawful;
• The form of the contract must be legal;
• The parties must intend to create a legal relationship;
and the parties must consent.
As a result, there are a variety of affirmative defenses

that a party may assert to avoid his obligation.

Affirmative defenses
Vitiating factors constituting defenses to purported contract
formation include:
 Mistake
 Incapacity including mental incompetence and
infancy/minority;
 Duress;
 Undue influence
 Unconscionability
 Misrepresentation/fraud
 Frustration of Purpose
Such defenses operate to determine whether a purported
contract is either (1) void or (2) voidable. Void contracts
cannot be ratified by either party. Voidable contracts can be
ratified.

Different types of contracts
• Contract Types
• Understanding the different types
• Other Types of Contracts

Contract Types
Although this list may not be complete and exhaustive, in the
following slides are some of the more common Contracts
and/or Contract types listed with a definition :
 Customer contracts
 Firm contracts
 Frame contracts
 Global agreement
 Letter of Intent
 Memorandum of understanding
 Request for Information-, Proposal-, or Quotation
 Proposal
 Purchase Order
 Split Contract

Understanding…. Customer
Contracts
A Customer Contract is a legally binding Sales

agreement between one selling legal entity and one
buying legal entity, which regulates the commercial
terms & conditions for certain in the contract
specified products/services. The contract could be
of Firm or Frame character.

Understanding… Firm Contracts
A Firm Contract is a legally binding Sales agreement

both for selling and buying entity. A firm contract
specifies quantities and price for products and
services sold, meaning that future revenue can be
determined.
A Firm contract by definition therefore includes a firm

purchasing commitment (embedded purchase
order) which forms the basis for orders booked
recognition when signed.

Understanding… Frame Contracts
A Frame Contract is a legally binding sales agreement for the
selling entity and for the buying entity that entitles the
customer to buy in the contract specified products and
services under specified terms & conditions with specified
prices.
A Frame contract, by definition does not include a firm
purchasing commitment and thus no orders booked are
recognized when signed.
The purpose of the Frame contract is to ensure efficient
customer purchasing through the separate issue of
Purchase Orders and efficient execution and delivery without
any major involvement from Sales representatives. Orders
booked are recognized PO by PO.

Understanding… Global Agreement
A Global agreement is a legally binding agreement

which regulates how the customer’s legal entities in
different countries are entitled to certain terms and
conditions when purchasing from Huawei
companies.
It should not be considered as a Customer Contract.

Understanding… Letter of Intent
A Letter of Intent (LoI) is an agreement between

two parties with the purpose to confirm a mutual
intention to close a contract. It could become
binding depending on the phrasing.
It is not considered as a Contract.

Understanding… Memorandum of
Understanding
A Memorandum of Understanding (MoU) is an

agreement between two parties used for many
different purposes. Normally it states a mutual
commitment to collaborate or to undertake certain
actions.
It is not considered as a Contract.

Understanding… RFI / RFP / RFQ
(Request for Information-, Proposal-, or Quotation)
• RFI, RFP or RFQ are issued by existing or potential

Customer, with the purpose to trigger
proposals/offers from vendors, both for new
Contracts as well as for re negotiation, expansion of
active or pre-existing Contracts.

Understanding the definitions
• Proposal
• Proposal is always legally binding for the selling entity if
so specified in terms & conditions. In the case the
proposal is accepted by the customer it becomes a
binding customer purchase commitment in accordance
with the offered T&C without having a formal Contract.
• This is however, not the normal purpose of the proposal.
• In such case where no particular Contract is signed, the
proposal will serve as a Contract together with the
Purchase order.

• Purchase Order
• A duly issued/ signed Customer Purchase order is a
legally binding purchase commitment and when the seller
accepts/acknowledges the Customer Purchase Order it
becomes legally binding for the selling entity.
• In case where no particular Contract is signed, the
proposal will serve as a Contract together with the
Purchase order.

• Split contract
• A negotiation with a customer could end up in a split
contract situation with multiple contracts with ownership
divided across the seller’s entities. A split contract
normally is between the seller’s local legal entity in the
country/region and its parent company.

Other types of contracts:
• Sales Contracts
• Loan Goods for sale
• Loan Goods for testing
• Change of Sales
• Donation
• Pure Sales
• Pure Services
For the purposes of the review guideline the most

common ones have been listed in the previous slides ,
but a more comprehensive list may be found in the
attachment section

Contract Analysis
• Policies
Ensuring the Corporate requirements are met
• Basic review principles
 What and why
• Structuring the review
 Getting started
• Prioritization
 The Eisenhower Matrix
Policies and checklists
• One of the basic pre-requisites of any review is the

primary compliance to Corporate policies.
• There is no use in reviewing a document which

contravenes, or is reviewed outside of the published
Senior management Policies regarding reviews.
• As a first priority, familiarity with the policies is a must.
• ( in the attachment sheet, please see some examples of Policies and checklists)

Policies
• When is it mandatory to involve a lawyer in the review?
Complete contract review:

 Corporate Level Projects
 Regional Level Projects
 Highly risky transactions
• Only the concerned clauses:

 Key Customer: Material Deviation
 Cyber Security Provisions
 Export Control
 Prohibited Clauses

Basic review principles
• Every company or corporation that does business today

has a set of business rules which are established by
Senior Management.
• These rules are also knows as “directives” or “sales
directives” and these basically establish WHAT the
business requirements of the company/corporation are in
order to stay in business.
• This means that every year, Senior Management give, or
set some “targets” which have to be met, in order to
satisfy the internal business requirements.

• It is these targets that define the basic business

principles that must be followed, and therefore the
Basic Review Principles must adhere to the guidelines
set out by the company.
Below are some examples for illustrative purposes only:
“All TK project smust be sold with 25% Margin”

“All Integration projects must be sold with 65%Margin”
“All Swap-out Projects must be sold with 35% Margin”

• Review Elements
• There are 3 basic elements required for the initial review

these are:
1) The Applicable Sale directive for the specific Contract

2) The Forecasted Sale Price of the project
3) The Forecasted Cost of the project

• Purpose of the review:
• The basic review principle is to ensure that the correct

process is followed during the MO part of the LTC
process
• The review has 4 steps

 1) The Financial aspect
 2) The Technical aspect
 3) The Feasibility aspect
 4) The Legal aspect

• During the review, 4 questions arise which require an

answer, and the answer comes from the review,
therefore the 4 aspects must be considered relative to

the following:
Q) The Financial Aspect : A) Is this project profitable?

Q)The Technical Aspect: A) Can it be done technically?
Q) The Feasibility Aspect: A) Can it be delivered as
requested?
Q) The Legal Aspect : A) Are these transactions Legal?

• Summarizing the review principles we can state that

answering the questions about the essential aspects of
the following points are the main goal of any review
• Business and Strategy

• Profitability
• Cash-flow
• Risk

Structuring the review
• How and where to begin :

• 7 steps to a successful review
• 1) Verify the completeness of the document to be
reviewed
• 2) Prepare the Statement of Compliance Matrix Template
• 3) Identify and assign the relevant parts of the document
to the relevant specialists
• 4) Set the review deadline
• 5) Perform the review
• 5) Gather the results of the review
• 6) Submit the review to the legitimate owners

• Step 1 :
• Verify the completeness of the documents to be reviewed
 This step is very important to ensure that all the documents

that form part of the review have actually been received and
checked for completeness.
 Tracking the documents will guarantee that the review will
be comprehensive and also will generate the Q&A lists
which follow the initial review.

• Step 2
• Prepare the Statement of Compliance Matrix Template

and perform the SOC
 The SOC is the first comprehensive step in the review

process.The results of the SOC will further determine if a
Company will proceed to the next round of negotiations or not.
The main risk here is that usually companies do not pay
attention, or do not perform the SOC review properly, and it is
here that OVERCOMITTMENT usually begins.
In the attachment sheet , please find SOC template example

• Step 3
• Identify and assign the relevant parts of the document/s

to the relevant specialists
 It follows that the experts in their respective fields, are the most
qualified to perform the review of their specific subject matter.
 As a matter of priority, it is important to correctly identify what
specialists will be required for the review, and which sections of
the material they are eligible and/or entitled to see.
 Security and confidentiality must always be respected and
preserved during this very sensitive stage.

• Step 4
• Set the review deadline
• Usually the Customer will clearly define a due date for

when the answers are to be submitted.
• This means that a “reverse-engineering” process must be
mapped out in order to meet the Customer requirements
according to the following:
• 1) Resources available for the review

• 2 Complexity of the review in question
• 3) The overall requirements of the RFQ.

• Step 5
• Perform the review
• This is where both collectively as a team, and individually

as a subject matter specialist, and as stipulated in the
previous step, the review work is performed, either in
parallel or cascading in order of priority and/or urgency
according to the time constraints and the resources
available

• It is worth noting that there are too many variables to set

a specific list of activities in sequence in order to perform
a review, however from a generic perspective the
following can serve as a Guideline:
1) Acceptance of the Business Principles

2) Statement of Compliance
3) Technical Offer
4) Financial Offer

• Step 6
• Gather the results of the review

• This is a very delicate phase of the review, where all the
results must be collected and consolidated is a clear and
understandable way. ( lack of document tracking, version
control or completed checklists have resulted in omitted
sections of the review /response which were then not
included by the Customer in the final Contract)
• Templates may be provided by the Customer, however,
for internal purposes Huawei Specific templates must be
used.
 In the attachment sheet , please find Review Summary template

• Step 7
• Submit the review to the legitimate owners
• Be sure that all the material, supporting evidence, review

templates, original documentation, or other ,is submitted
in time to the legitimate owner.
• He/She will then take the review and use this material in
the decision-making process together with the other
relevant stakeholders as to what are the next steps after
the review has been assessed.

Prioritization and the Eisenhower
Matrix
• Prioritization is key when performing the review

activities.
• In order to track and perform all of the required
activities, The Eisenhower Matrix may be a useful
tool to help the CM in his/her activities
How to Prioritize
• Great time management means being effective as well as

efficient. Managing time effectively, and achieving the
things that you want to achieve, means spending your
time on things that are important and not just urgent. To
do this, and to minimize the stress of having too many
tight deadlines, it is important to understand the
following distinction:
• Important activities have an outcome that leads to the
achievement of your review goals.
• Urgent activities demand immediate attention, and are
often associated with the achievement of someone else's
review goals.

How to Prioritize
• Time is critical when performing reviews, and therefore

the capacity/or capability of successful prioritization is a
key factor in being able to perform a proper review.
• The Urgent/Important Matrix is a useful tool for helping

you achieve your goals with the greatest rate of success
possible.
• Also known as the “Eisenhower Matrix” it is one of the

most widely used ‘prioritization’ tools today.

The Eisenhower Matrix

How to Prioritize
The steps below help you use the matrix to prioritize your
activities:
1) list all the review activities you have to do.
2) assign importance to each of the activities – you can

do this on a scale of 1 to 5: remember, this is a measure
of how important the activity is in helping you meet your
review objectives.

How to Prioritize
3) Once you have assigned importance to each activity,

evaluate the urgency of each activity. As you do this, you
can plot the listed items on the matrix according to the
assigned importance and urgency.
4) Now study the matrix using the strategies described

below to schedule your priorities.

How to Prioritize
• Results in the matrix will dictate the order of priority:
1st priority: Urgent and Important

2nd priority: Urgent and Not Important
3rd priority : Not Urgent but Important
4th priority : Not Urgent and Not Important

How to Prioritize
• 1st Priority: Urgent and Important

•
There are two distinct types of urgent and important
activities: Ones that you could not foresee, and others
that have been left to the last minute.
• Issues and crises cannot always be foreseen or avoided.
The best approach is to leave some time in your schedule
to handle unexpected issues and unplanned important
activities. If a major crisis arises, some other activity may
have to be rescheduled.
• If this happens, identify which of you urgent-important
activities could have been foreseen and think about how
you could schedule similar activities ahead of time, so
they do not become urgent.

How to Prioritize
• 2nd Priority : Urgent and Not Important
Urgent but not important activities are things that stop

you achieving your review goals, and prevent you from
completing your work. Ask yourself whether these tasks
can be rescheduled, or whether someone else could do
them.
Sometimes it's appropriate to say "No" to people, or
encourage them to solve the problem themselves.
Alternatively, try allocating time when you are available
so that people only interrupt you at certain times (a good
way of doing this is to schedule a regular meeting so that
all issues can be dealt with at the same time.)

How to Prioritize
• 3rd Priority: Not Urgent but Important
These are the activities that help you achieve your review
goals, and complete important work. Make sure that you
have plenty of time to do these things properly, so that
they do not become urgent. And remember to leave
enough time in your schedule to deal with unforeseen
problems. This will maximize your chances of keeping on
schedule, and help you avoid the stress of work
becoming more urgent that necessary.

How to Prioritize
• 4th Priority : Not Urgent and Not Important
These activities are just a distraction, and should be

avoided if possible. Some can simply be ignored. Others
are activities that other people may want you to do, but
they do not contribute to your own desired outcomes.
Again, say "No" politely and firmly if you can.

How to Prioritize
• The Urgent/Important Matrix helps you look at your

review list, and quickly identify the activities you should
focus on.
• By prioritizing using the Matrix, you can deal with truly

urgent issues, at the same time that you keep on working
towards your goals.

Contract Analysis
• The CM’s Key Items of Review

• A Basic Review Checklist
• Summarizing the findings
• A short Contract Terms dictionary
• Acknowledgements and Attachments
The CM’s Key Items of Review
• For a CM performing a review there are some Key Items

which he/she must address as a matter of Top Priority
• These are:
• 1) Terms and Conditions of Payment

• 2) Acceptance
• 3) Penalties
• 4) Variations/Change Management

• The reason for addressing these first 3 top Items is

because these are the items where the majority of the
risks may occur or may contain embedded toxic clauses
• We shall now look at these items and their dependencies
in order to explain further the subject .
• “Toxic Clauses” are those that apparently seem low-risk,

but when summed up to other clauses, put Huawei in a
lower negotiating position, or in the worst case contain
those elements that put Huawei in commercial danger.
• The following slides will address each topic

• Terms and Conditions of Payment
• This part of the Contract is where all the definitions of the

Terms and Conditions are found.
• Great care must be take during the evaluation of this
section, because it is here where the profitability of the
contract can be measured.
• The evaluation of the Terms and Conditions is critical for
the health and quality of the future transactions

• Acceptance
• There are 3 main parts to this heading:

• Acceptance Criteria
• Acceptance Process
• Acceptance Procedure
• All three of these headings need to be consistent and

feasable. The parts affected would be the SOW , the
delivery schedule and the billing plan mainly.
• The CM should be most diligent in the evaluation of this
section of the Contract

• Penalties
• Penalties are the recourse by which the party who did not
receive the full benefits promised, as stipulated by the
contract, either by neglect, omission or breach.
• It is to this effect that Penalty clauses are so critical, but
should be fair and should never exceed the total value of
the contract proper.
• A very close scrutiny of the Penalty clauses is required
during the analysis, to ensure both parties are protected
fairly in case of non-fulfillment of the deliverables and
obligations promised.

• Penalties ( continued)
• When reviewing the penalties, it is best practice to map

the proposed penalties in the Risk analysis scenarios,
and , to include the amounts in the Cash-Flow
simulations.
• Further, the risk exposures and mitigation costs are basic

elements for the creation of the project budget , the
factoring of the risk premiums in the offer and the
identification of the areas of future negotiation

A Basic Review Checklist
13 Golden Rules
• Here is a basic review checklist to be used for CM’s during their
reviews to ensure that at least the critical aspects have been
addressed:
• 1) Clear descriptions of Goods, Services and Payments?

• 2) Start and End dates, Order of Precedence and definitions?
• 3) Important dates relative to milestones, payments, reports?
• 4) Renewal and/or Change procedures clear and understood?
• 5) Acceptance Process, Procedure and Criteria clear ?
• 6) Currency of payments, adjustment clauses for inflation,
exchange rates and raw commodities?

13 Golden Rules
• 7) Method of providing notice of default and remedy to

cure clear ?
• 8) Rights, duties and obligations of the parties clear?
• 9) Indemnification, liquidated damages and waivers?
10) Rights to sell Receivables?
11) Governing Law, Taxes and Legal Entities?
12) Title, Risk, Billing, Governance and Escalations?
12) Force Majeure, Insurance and Warranties?
13) Confidentiality, IPR’s and Terminations?

Summarizing the findings
• Recording and summarizing the Findings

 All the team efforts are finally consolidated and summarized for
the Senior Management in a structured manner and should be
presented in a uniform way for continuity and clarity.
 ( in the attachment sheet please find Summary Template)
• Understanding ownership of the decisions
 It is important for the CM to understand that he/she is not the
owner of the decisions taken, but, that he/she is the provider of
the information on which the decisions are made. This
responsibility must be respected and understood.
• Transparency
 All information provided by the CM must be completely
transparent and verifiable.

A short Contract Terms Dictionary
• The attached is a basic reference dictionary for the CM’s

use and reference .
• It is a work in progress, and any additions are more than
welcome in order to expand our body of knowledge and
support base to all of the Huawei CM’s.
Microsoft Office
Excel 97-2003 Worksheet

Acknowledgements
• Sincere thanks go to the following people for their

invaluable contributions of ideas, materials and guidance
to the preparation of this presentation.
• Claudio Garzillo
• Deborah Anne Strydom
• Enrico Dimitri
• Phillip Price

Attachments and Templates
• Policies ( examples of some current policies)

•
Microsoft Office Microsoft Office
Microsoft Office Microsoft Office C:\Documents and Word 97 - 2003 Document PowerPoint Presentation
Word Document Word Document Settings\sgw13577\Deskt
• Checklists ( example)
Microsoft Office
Excel 97-2003 Worksheet
• Additionals
Microsoft Office
Excel Worksheet

Attachments and Templates
Contract & Annex review Template Microsoft Office

Excel Worksheet
Review Summary Template Microsoft Office

Excel Worksheet

Thank you
www.huawei.com

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Performing a Contract Analysis

A basic reference guide www.huawei.com

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential

A contract is an agreement entered into voluntarily

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 3

Both of these remedies award the party at loss the

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 4

Elements of a Contract are:

• Offer and Acceptance

• Intention to create legal relations

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 5

There is a presumption for commercial agreements

When reviewing a contract – the court will look at the

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 7

Consideration is something of value given by a promissor

Consideration consists of a legal detriment and a bargain.

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 8

A bargain is something the promissor (the party making

The legal detriment and bargain principles come together

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 9

In addition to the elements of a contract:

• A party must have capacity to contract;

As a result, there are a variety of affirmative defenses

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 10

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 11

• Understanding the different types

• Other Types of Contracts

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 13

A Customer Contract is a legally binding Sales

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential

A Firm Contract is a legally binding Sales agreement

A Firm contract by definition therefore includes a firm

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 15

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 16

A Global agreement is a legally binding agreement

It should not be considered as a Customer Contract.

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 17

A Letter of Intent (LoI) is an agreement between

It is not considered as a Contract.

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 18

A Memorandum of Understanding (MoU) is an

It is not considered as a Contract.

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 19

(Request for Information-, Proposal-, or Quotation)

• RFI, RFP or RFQ are issued by existing or potential

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 20

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 21

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 22

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 23

For the purposes of the review guideline the most

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 24

• One of the basic pre-requisites of any review is the

• There is no use in reviewing a document which

• As a first priority, familiarity with the policies is a must.

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 26

• When is it mandatory to involve a lawyer in the review?

Complete contract review:

• Only the concerned clauses:

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 27

• Every company or corporation that does business today

HUAWEI TECHNOLOGIES CO., LTD. Huawei Confidential Page 28