When you’re drafting a contract, you’re setting the boundaries and expectations for a business relationship that may continue for years and years. It’s critical that you get the details right. Here are nine contract drafting tips that will help you go from handshake agreement to signed contract.
1. Start with an Outline of the Deal
Before you start working on the actual language of the contract, you need to make sure you are clear on what the deal is you are trying to memorialize. Create an outline of the agreement that includes the answers to these basic questions:
- What is going to be delivered?
- When is it going to be delivered?
- Who is delivering it?
- How much is it going to cost?
- How will payment be made?
- When will payment be made?
- Who is paying?
If you have a good outline, drafting the contract will be much easier.
2. Choose a Template to Get Started
There’s no need to stare at a blank page. You can start with a template or a similar contract you’ve used in the past. However, you need to make sure you change details such as the party names. Make sure all of the information from your outline makes it into the contract, and that any references other parties are eliminated.
3. Choose Clear Language
Commercial contracts are more effective if they are easy to understand. Your goal is clarity. Use precise language. Don’t be afraid to include a list of definitions to make sure everyone has the same understanding. Any ambiguity is a seed for a future conflict.
Avoid using words that have specific legal meanings, and that have different meanings in other contexts. If you need to use legal terms of art, make sure your intention is clear.
When you use clear language, you increase the chances the agreement is executed smoothly by both sides.
4. Be Consistent with Terms
Contracts need to be clear, but they also need to be consistent. It’s okay if the contract is boring. It’s not supposed to be riveting reading. Don’t use synonyms. Use the exact same words the same way throughout the document.
You also need to be consistent with how you refer to the parties.
5. Be Concise
The first rule of excellent writing is: Omit needless words. Extra words not only make a contract longer than necessary, but they may also subtly alter the meaning of a key clause.
Short sentences are easier to read and understand. Your first draft of the contract will not be perfect. Your first editing step should be to eliminate extra passages and phrases from the document. Only include clauses that are relevant to the specific deal/
6. Define the Parties
The best practice is to define the parties in the first paragraph and announce how they will be referred to in the rest of the contract. For example, you will want language similar to this:
ACME Inc., hereafter referred to as “Vendor”, and Big Bucks LLC, hereafter referred to as “Buyer”…
You need to make sure a stranger to the deal can easily tell who has agreed to do what. Clearly defining the parties will make the rest of the contract easier to read and understand.
7. Define the Purpose of the Contract
It may be clear to you know what the purpose of the contract is, but it may not be clear in three years after you’ve been promoted and someone else is trying to make sense of the contract you left behind.
After you have defined the parties, you should define the purpose of the contract. This is the part of the contract known as the recitals, where you state a set of facts that the parties have agreed to that form the basis for making a deal.
8. Dispute Resolution Clause
Not every contract is going to have a happy ending. You need to draft a dispute resolution clause that outlines how the parties will handle any disputes.
You may want to require mediation or arbitration instead of litigation.
Having a brief dispute resolution clause could save your organization a lot of money.
9. Draft with an Eye on Future Litigation
When drafting a contract, you need to imagine the entire lifecycle of the agreement. This includes drafting with an eye towards the potential of future litigation. The document you are writing may end up in court being interpreted by a judge or a jury.
You need to draft like the future of the deal depends on a stranger being able to understand exactly what all the details of your agreement are.
Taking the time to carefully draft a contract will help reduce your risk and will help ensure a strong business relationship between the parties.