Need to draft a contract: Top ten tips from a local business lawyer

You’re not a lawyer, but you need to draft a contract. These are the ten points that matter most.

1. It’s what you don’t cover that comes back to bite you

Persistently and consistently the biggest source of contract dispute is leaving out something important. The opposing party can fill a void with any manner of nonsense claims.

To avoid this, plan your contract as a chronological journey: walk through what needs to happen, and when. Typically:

• Part 1 – who is making the deal: name those signing – full name, address and status (company, sole trader, agent for, etc.). If someone is doing something or guaranteeing something, then they should be a signatory – watch out for group company situations. Are all the active players signing?
• Part 2 – key background information: aka the Recitals. Not technically part of the contract. Explain the deal and/or intended outcome – sometimes a contract is incomprehensible without this context. It also helps with interpreting the contract if necessary.
• Part 3 – definitions: optional, but they can make contracts tighter because they cement terms used (e.g. when do ‘business hours’ end?) and keep that meaning consistent throughout. They’ll also help you write a contract by avoiding the need for repeated explanations.
• Part 4 - the deal: your deal in detail – e.g. what is being supplied; start and end dates (plus terms for extension); how any obligations will be carried out; where things are made, sold or delivered; build standard; cost and when payment is made, etc.
• Part 5 – what if something goes wrong: identify the risks in your situation, maybe late delivery, non-payment, defects, delays? Say what happens and who picks up the tab. Also, what major issues will kill the contract and how triggered?
• Part 6 – ancillary matters: not directly about the deal, but still necessary, e.g. confidentiality, data protection, don’t poach staff, tax, late payment interest, third party rights, etc. Look at contracts in your industry/generally to identify recurring issues.
• Part 7 – signing: name who signs for each side. Make sure they are senior enough (e.g. a Sainsburys checkout person in Brighton usually can’t sign for Sainsburys HQ).
• Part 8 – schedules: detailed/voluminous technical/operational material that would kill the flow of the contract if dumped into the main body of it. Separately, if your contract is to be a standard template then you may want the main body unchanging from deal to deal - so you can stick variables (customer, service supplied, price, location etc.) in the schedules or a job order form.

2. Use clear language

Short sentences and plain English. If a clause can be read two ways, it’s unclear. Some leeway here for ‘terms of art’ (being words/phrases with a specific, agreed meaning within your field - but careful when that meaning differs from the everyday meaning of the words used).

3. Courts go by the words, not your intentions

Terms of art aside, judges apply the ordinary meaning of the words on the page. They don’t fix bad drafting or add missing ideas. If the meaning isn’t obvious from the text alone, you’re toast (your contract = ambiguity is your fault).

4. Be boringly consistent

Use the same words for the same things every time. If you change wording, a court will assume you meant something different. This can lead to unexpected outcomes.

5. Treat every promise as a guarantee

If you agree to do something, you are guaranteeing it. Only guarantee what you can deliver. Otherwise use “reasonable endeavours” (will do if reasonable) or “best endeavours” (will do if can, even if it means you make a loss).

7. Define the deliverables precisely

Vague phrases like “ensure customer satisfaction” are both useless and dangerous. State who does what, by when, and define what constitutes both a customer and satisfaction.

8. Separate ownership from risk

Ownership (title) and risk (who takes a hit) are separate. Decide when each passes: on delivery, on payment, or when?

9. Be clear what constitutes your contract

Is it only the written document, or do earlier conversations and assurances count? If the contract refers to other documents, they could well become part of the contract. Essential homework alert - look up ‘battle of the forms”.

10. Don’t draft something that no one will sign

A determinedly one-sided contract may look clever, but so often kills the deal. Actions (the tone and content of your contract) speak louder than words (the things you say during negotiations).

A good contract records the deal clearly and explains what happens when things go wrong. Get those two right, and you’re already more than half-way there.

James O'Connell is a Partner at Mayo Wynne Baxter. Find out more on their website here. 

This is part of a new series we’re running with Chamber members, picking out different experts working in the areas of business you most frequently ask us for advice or expertise on. Keep your eyes peeled for more installments on finance, marketing, sales, productivity and more.

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