Drafting contracts is part and parcel of two parties doing business. In order to grow and succeed, your organization must be skilled at writing and negotiating contracts. Below, you'll find five of the most useful tips for drafting contracts so that you'll have the best chance of making your next business partnership a fruitful and productive one.
1. Avoid Ambiguity
You should seek to keep away from ambiguous language in your contracts at all costs. Not only does ambiguity foster confusion and misinterpretation, it also exposes you to legal risk. Even a misplaced comma or adverb may completely transform the meaning of a sentence and create unexpected consequences.
If possible, have a lawyer look through the final document in search of phrases that may have a double legal meaning. Using the term "agent" within a contract, for example, can imply that this person has certain obligations that you didn't intend.
2. Be Concise
The longer a contract is, the more likely that it will contain problems such as mistakes and ambiguous language. You should strive to keep contracts as short as possible, but no shorter. Each sentence of the contract should have a clear purpose and serve to reduce complexity.
As much as possible, avoid the use of technical jargon; write in plain English wherever possible. When appropriate, simplify phrases into single words (such as "propose" instead of "make a proposal"). Use the active voice instead of the passive voice, which tends to make sentences longer.
3. Create an Outline
Together with your contract partner, you should draft an outline of the document as both parties understand it. This will increase the contract's clarity, reduce misunderstandings and improve its logical structure.
Not only will the outline assist in writing the document, it will also help you hash out issues that you have overlooked or haven't discussed during the negotiations. This might include sections such as penalties in the event that the contract is breached or terminated early.
4. Define the Important Terms
At the very beginning of the document, most contracts include definitions of the essential people and entities. You're probably familiar with boilerplate language, such as "hereafter referred to as."
All definitions must be explicit enough that a third party would be able to recognize and understand exactly what they mean, even without any firsthand experience with the contract. For example, the term EOD (end of day) is usually interpreted to mean 5 p.m. local time — but not always, so make sure you include a definition of how you interpret EOD and which time zone you'll be using.
5. Think About Lawsuits
Although no one wants to imagine that the terms of a deal will go sour, it does unfortunately happen. Indeed, the purpose of a contract isn't just to understand both parties' roles and responsibilities, but also for both parties to protect themselves as much as possible in the event of a lawsuit.
The potential of a lawsuit should be in the back of your mind when drafting a contract. It's a good idea to bake alternatives to litigation, such as mediation and arbitration, into the contract itself. Make sure that the terms of the contract aren't in conflict with the laws of the locations where the contract will take effect. As mentioned above, the contract's language should be watertight so that your organization can avoid expensive and time-consuming litigation.