Whether contracts are oral or written, they lie at the centre of all businesses and act as the bedrock for all dealings. Most people in business know that contracts based on promises and handshakes are likely to end badly.
In simple terms, the requirements needed to form a legally enforceable contract include:
- One party making a valid offer to another
- The other party validly accepting it
- A price given (consideration, which must have value) in exchange for the goods/services.
Additionally, the following should also be present:
- The intention of both parties to create a legally binding agreement must be present
- Certainty of terms
To ensure your business interests are protected, you should consider the following tips when drafting the contract.
Drafting a contract from a blank page is likely to seem insurmountable. But you can use a precedent, or framework, as a starting point. Without a framework, the business of drafting a contract can seem an unwieldy task. Signature and boilerplate clauses can be utilised from elsewhere, giving you the rough outline of the contract.
What are operative clauses? This is the part of the contract concerning:
- Who is doing what
- When they are doing it
- How they will do it.
These things are likely to have already been discussed between you and the other party, but they can also arise from your experience of previous situations. It is vital from the outset that the contract includes a ‘scope’ clause broadly detailing what goods or services the contract covers. You can then look back and remind yourself later in the drafting process what you are hoping to achieve.
The goods or services you are delivering, or ‘deliverables’, are likely to make up the bulk of the contract and can be broken down into simpler categories. These can be reduced even further into specific clauses that deal with the detail. One way of grouping clauses is to include a separate clause for each party’s obligations. You don’t need to have all the answers at this stage, and you don’t need to have the wording of the clauses finalised either. The most important thing is to make sure you have covered all the relevant ideas.
You should consider any rights arising from the subject matter of the contract and to who they will belong. Things to consider include:
- Does the other party need the freedom to carry out any work that requires permission from a third party?
- If material is created, who will own it?
- Does the other party need to undertake a particular course of action? If so, do you need to reserve the right for them to do so?
- Is any party giving rights to another that must be performed in a specific way? Are there any controls that need to be put in place?
- Do you need to include a non-compete clause prohibiting the other party from offering their goods/services within the same sector?
- Do you want to include scope for variations if the business changes or market fluctuations alter deliverables?
You should consider everything that can go wrong during the life of the contract. Troubleshoot various scenarios, both likely and unlikely, and consider whether they will create any issues if they arise, and the extent of any consequences. You can then use this information to develop a clause for each scenario. Think about whether the situation must be remedied, who will pay for it, and if it could lead to termination of the contract.
Although the content of the contract is extremely valuable, your process when physically drafting it is also important to consider. Here are some top tips for when it comes to drafting the contract:
- The language used within the contract should be both plain and clear. This ensures meanings cannot be misinterpreted.
- After outlining the clauses you want the contract to cover, they should be re-read and refined, with any superfluous language removed or formalised. Wording should be tightened and checked for clunky or confusing clauses. This is the point at which your contract really takes shape.
- When you have edited and amended the contract, you should, ideally, leave it alone for a while, preferably overnight. If this is not possible, at the bare minimum, do something different for a while before looking at it again. If you return with a fresh pair of eyes, it will help you scrutinise the draft more objectively, and identify any errors, potential ambiguities, or duplications.
- There will come a point when you need to stop editing and amending the contract and be satisfied with what you have produced. Further on in the process, you may have another opportunity to change things. Give it to someone else to read and ask them whether they understand the contents and feel it works in the way it was intended. You should then consider acting on any feedback.
The information on this website is intended as a guide and does not constitute legal advice. Vardags do not accept liability for any errors in the information on this website, nor any losses stemming from reliance upon the statements made herein. All articles and pages aim to reflect the legal position at time they were published, and may have been rendered obsolete by subsequent developments in the law. Should you require specialist advice, tailored to your situation, please see how Vardags can help you.