Performance by affiliates: Overview, definition, and example
What is performance by affiliates?
Performance by affiliates refers to a situation where a company allows its affiliated entities—such as subsidiaries, parent companies, or related businesses—to fulfill its contractual obligations. This means that even though one company signs an agreement, another related entity can carry out certain duties under the contract.
This arrangement is common in corporate structures where multiple related companies operate under a single brand or business group. It allows for flexibility in fulfilling obligations without requiring contract amendments for every business entity involved.
Why is performance by affiliates important?
Performance by affiliates is important because it provides businesses with operational flexibility. It allows a company to use its corporate structure to delegate work, optimize resources, and ensure efficient contract execution.
For example, a multinational corporation might sign a contract but use one of its regional subsidiaries to perform the work. Without a clear provision allowing performance by affiliates, the contracting party could argue that only the original signatory is responsible, leading to potential disputes.
This clause is also beneficial in outsourcing arrangements, where a company may rely on third-party affiliates to deliver services without formally transferring contractual obligations.
Understanding performance by affiliates through an example
Imagine a software company, TechCorp Inc., signs a contract to provide IT support services to a client. Instead of handling the work itself, TechCorp assigns the task to its subsidiary, TechCorp Solutions Ltd., which has specialized expertise.
Since the contract includes a performance by affiliates clause, the client cannot object as long as the obligations are met. However, TechCorp Inc. remains responsible for ensuring its affiliate delivers the services as agreed.
Similarly, a manufacturing company may sign a supply contract but have one of its overseas affiliates handle production and delivery. The affiliate performs the work, but the original contracting company remains liable for the contract’s fulfillment.
An example of a performance by affiliates clause
Here’s how a performance by affiliates clause might appear in a contract:
“The obligations of [Company Name] under this Agreement may be performed by its Affiliates. Such performance by an Affiliate shall not relieve [Company Name] of its obligations or liabilities under this Agreement.”
Conclusion
A performance by affiliates clause allows businesses to leverage their corporate structure to fulfill contractual obligations efficiently. It provides flexibility while ensuring that the original contracting party remains responsible for compliance. Companies using affiliates for performance should ensure that obligations, liability, and expectations are clearly outlined in their contracts to avoid disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.