Guide to Contract Drafting Basics and Best Practices

Drafting Basics: Organizational Parts and Contractual Concepts

The first stage of the contract lifecycle is the drafting stage. Contract drafting is one of the most crucial parts of the contract management lifecycle because it provides the foundation upon which the rest of the contract is built. Clarity and precision in contract drafting are essential for making sure that both parties needs are met. Additionally, having a well-written contract during every business deal can help provide a strong layer of legal protection. Below we’ll go over some of the main aspects that should be included in all drafts and best practices for drafting a contract.

 

Organizational Parts

Like most legal documents, all contracts follow a basic format, called contract parts. The style of a contract may vary widely from one industry to another. The length and detail of a contract will also vary greatly, depending on the complexity of the transaction. However, every contract contains at least some of the common contract parts:

The Contract Frame—The formal language at the beginning and the signatures at the end.

The Definitions Section—The definitions used in the contract.

The Business Section—Set out the party’s rights and responsibilities.

The Termination Section—Deals with the end of the contractual relationship.

The General Provisions Section—Sometimes called the boilerplate, this section contains statements of policy which govern the contract.

 

Contractual Concepts

Contractual concepts, unlike contract parts, consists of the operative language in the contract. These are the words that create contractual rights and obligations and are the basis for contractual liability or authority. They also set out policies for regulating the contractual relationship.

An easy way to think about the contractual concepts is to associate them with verbs. Just as every sentence must have a verb, every sentence in a contract contains at least one of these concepts. These are:

Declarations—Sets policy for the contractual relationship and can be used to define terms. These do not create any obligation or liability. These are signaled by the present tense of the verb. “The purchase price is $25,000” is an example of a declaration. Note that this declaration does not obligate the purchaser to pay the purchase price. To create an obligation, a covenant should be used.

Covenant—A covenant obligates a party to do, or refrain from doing something. It also creates a right to the obligation to the obligated party’s performance belonging to the other party. A covenant is a promise, and is signaled by the use of “shall.” Example: “buyer shall pay the purchase price.” Using the word “shall” however, is not universal. Sometimes, a covenant is signaled by “will” or “must.” The best practice for signaling a covenant though, is to use “shall.” Shall unambiguously signals an obligation, unlike the other two, which may just signal futurity or conditions.

Representations—A fact which is to be relied upon. Made with regards to past or present facts.

Warranty—A promise that a fact is true. Unlike representations, warranties can extend into the future.

Together, a warranty and a representation can create liability on the part of the party making them if a fact is not as represented and warranted.

Discretionary Authority—Gives the party discretion to do or refrain from doing something, but does not obligate the party to do anything. This is signaled by the use of “may.”

Condition—An event which is not certain to occur, which must occur, before performance under a contract becomes due. Conditions are of two varieties: express, which is set out in the party’s agreement, and implied conditions, which are read into the agreement by the court. Conditions never appear in isolation and are always attached to an obligation. The language signaling a condition can vary from contract to contract. Failure of a condition does not, in and of itself create liability or a right to damages. Conditions are never breached. Conditions may trigger an obligation, but they do not create obligations. Conditions are signaled by “if” “provided that” “in the event of,” etc.

Contract Drafting Best Practices

Concord’s Contract Success Software is ideal for facilitating the drafting of contracts for three key reasons: Concord streamlines processes, adds automation, and adds flexibility. There are several options for drafting a contract within Concord:

Importing a Word or PDF document

Documents can be imported and developed within Concord. To do this, log into concord and from the inbox screen select “new document”, click “new document to sign”, and then select to import from Word or PDF.

Create a Contract from Scratch

Concord has all the basic word processing and editing tools needed to create a new contract draft. To do this, sign in and click “new document” and then “new document to sign”, and begin writing your contract. The real strength of Concord, though, is the ability to use and reuse templates.

Using Contract Templates

With Concord, there is no limit to the number of templates a user can have. Templates help make sure that employees are all on the same version of a contract by automatically updating any changes made across to every user who is using that template. This ensures that everything is kept consistent at all times. Templates also help reduce the frequency of errors and the time needed for contract drafting. To start drafting a contract from a template, click “new document” and then click “new template.” At this point, you can either create a template from scratch or import a template in the form of a PDF or Word document.

 

All-In-One Contract Management Software

By having the contract drafting phase of the contract lifecycle contained within Concord, there is no need for importing, exporting, emailing, or formatting later on. The contract is kept in Concord through the execution, management, and renewal stages. Along with the contracts themselves, Concord also stores all contextual actions such as the contract audit trail, discussions, and versions. All these tools are designed to streamline and simplify processes to help forge strong and lasting contractual relationships.