A Step-by-Step Guide To Drafting Contracts

Content

• What is contract drafting?
• What makes contract drafting crucial?
• How to draft a contract
• Essential elements of a valid contract
• Writing a contract
• Finalizing the contract
• Streamlining contract drafting with Dock 365
• Conclusion

Contracts dictate the future of business relationships. Naturally, organizations must exercise extra caution when drafting legally binding agreements to ensure a long and bright future. From the kind of language you use to its structure and content, every minute detail affects the success and enforceability of the contract.

Automated contract management solutions available today make the process easier and eliminate the need to draft contracts from scratch each time. Even then, organizations require well-thought-out strategies to create legal agreements compliant with their interests and laws. That is why we have conceived a road map to help you draft contracts that serve the purpose of all your legal relationships.

What is contract drafting? 

Contract drafting is the process of creating legal documents outlining the terms and stipulations of an agreement. Before entering any business partnership, a comprehensive legal document is vital to insist on performance and compliance in the future. For instance, performance agreement contracts are often used to ensure that specific goals and responsibilities are clearly defined and met over time. What makes contract drafting crucial?

With a legally binding, companies can ensure conformance to all their needs and demands. That is why the wording and content of a document are so crucial.  

Any error or mishap in contract drafting can lead to the loss of time, revenue, and credibility. Prioritizing contract drafting by leveraging data secures the legal agreement. Apart from that, an executed contract is an untapped resource for organizations. Contract data empowers businesses to perpetuate data-driven decisions.  

What makes contract drafting crucial?

There are no two ways about the significance of written contracts in business relationships. They dictate the rights and responsibilities of each party and ensure their legal validity. Unlike oral agreements, they’re easier to establish in a court of law. That is why drafting is such a crucial part of contract management. Some other benefits include:

• Clarity and understanding

A formal agreement promotes mutual understanding and clarity between the parties. It clearly outlines the contract terms, including the rights and responsibilities of each party. Thus, everyone is on the same page regarding their obligations and rewards. It helps prevent misunderstandings and disputes down the line.

• Legal protection

A well-drafted contract provides legal protection to the parties involved. It can be challenging to prove oral agreements exist in legal contexts. Putting rights in writing ensures that they are clear and enforceable in court. Thus, parties can safeguard their interests in a business deal or transaction.

•  Record-keeping

Contracts serve as vital documentation. They offer an unambiguous record of responsibilities, guarding against future disagreements and legal problems. Businesses can reduce risks and promote accountability by keeping thorough contract records, made possible through drafting. Maintaining integrity and trust in business relationships requires effective contract record-keeping.

• Enforceability

A poorly drafted contract may be deemed unenforceable in a court of law. By ensuring that a contract is well-written, parties can increase the likelihood of upholding the terms during a dispute. Thus, it’s easier to establish performance and compliance. It provides a level of security and certainty to the parties involved. 

How to draft a contract?

Despite their importance, contract authoring is a challenging feat, especially for complex situations. The process involves several departments, parties, and stakeholders. Getting all their input and approval to reach an agreement can be challenging. Here’s all you need to consider while drafting a contractual agreement:

Essential elements of a valid contract

1. Introduction and parties involved

The first step in drafting a contract is to identify the parties involved. It includes providing the full legal names and addresses of all parties. Additionally, they require a brief introduction outlining the purpose of the contract and the relationship between the parties. It sets the foundation for the rest of the document and ensures parties are on the same page.

2.  Definitions and interpretations

Clarity is key when it comes to contract drafting. Contractual agreements must define all essential terms in the document to prevent future misunderstandings or confusion. It guarantees all parties understand the wording and parameters of the agreement. Additionally, including an interpretation clause can help clarify the meaning of terms in the context of the contract.

3. Rights and obligations of each party

Contracts must outline the rights and obligations of each party involved. This section should clearly define what each party is responsible for and any limitations or restrictions. By clearly outlining these terms, both parties can ensure that they are fulfilling their end of the agreement and avoid any potential disputes in the future.

4.  Payment terms and conditions

During the drafting process, contracts must outline how and when payments will be made, including the amount, method of payment, and any applicable late fees or penalties. The specificity helps to avoid confusion or disagreements regarding payment obligations.

5. Termination and renewal provisions

Termination and renewal provisions outline the circumstances under which the parties can end the contract and the conditions for renewal or extension of the agreement. By clearly defining these provisions, all parties can comprehend their rights and obligations if the contract needs to be ended or renewed.

6.  Dispute resolution mechanisms

Disputes are an inevitable part of any business relationship. That is why including a section on dispute resolution mechanisms in a contract is crucial. It dictates how parties can resolve their disputes through mediation, arbitration, or litigation. By including these provisions in the contractual agreements, parties can avoid costly and time-consuming legal battles in the event of a disagreement.

Writing a contract

1. Drafting unambiguous clauses

One of the most crucial aspects of drafting a contract is ensuring that the clauses are unambiguous and clearly define the rights and obligations of each party involved. Ambiguity in contract language can lead to misunderstandings and disputes down the line, so it's essential to be as precise as possible. When drafting clauses, avoid using vague language or terms. Instead, be direct in your wording. Consider all possible scenarios and ensure that the language used leaves no room for interpretation. If necessary, seek legal advice to ensure clauses are airtight and legally enforceable.

2. Using standardized language and templates

Drafting contracts from scratch takes time and requires legal knowledge. By using standardized templates, businesses can save time and resources by having a solid foundation to work from. It speeds up the contract drafting process and reduces the legal costs.

Organizations can ensure consistency in their agreements by using a contract playbook. They can establish clarity and uniformity in the terms and conditions, making it easier for all parties to understand their rights and obligations. Standard clauses and templates compiled by legal professionals help to ensure that their contracts are legally sound and meet the requirements, reducing the risk of legal challenges in the future. However, it's essential to customize the template to fit the specific needs of your agreement. They must review and edit the template to reflect the unique terms and conditions.

3. Using boilerplate contracts or clauses

Boilerplate clauses or contracts are standardized provisions that are common in legal agreements. While they may seem routine and unimportant, they protect the rights and clarify the terms of the contract. Having pre-approved boilerplate language at hand can fast-track the drafting process. Some popular boilerplate clauses include

Governing Law: This clause specifies which state's laws will govern the interpretation and enforcement of the agreement.

Severability: This clause ensures that if one part of the agreement is invalid, the rest remains in effect.

Force Majeure: This clause outlines what happens if unforeseen events, such as natural disasters or political unrest, prevent one party from fulfilling their obligations.

Waiver: This clause states that failing to enforce one provision does not waive the right to enforce other provisions in the future.

Finalizing the contract

Businesses have to take steps to ensure they’re protecting the interests of all parties involved before executing a contract and making the terms legally binding. Going through the document thoroughly for discrepancies, unfair terms, or errors is crucial for effective contract drafting.

One of the most essential steps in finalizing a contract draft is seeking legal review and approval. Legal experts can help ensure that the contract complies with all relevant laws and regulations and protects the rights and interests of the parties involved. They can help identify any potential legal issues or loopholes in the contract. Consequently, they can resolve the problems before signing the agreement.

Streamlining contract drafting with Dock 365

Dock contract management software can go a long way in standardizing the content of contractual agreements. They provide comprehensive templates and clause libraries that cover common legal scenarios and provisions. A clause library is a collection of standard contractual clauses that can be inserted into a contract template, saving time and effort in drafting new contracts. Businesses can streamline the contract creation process to ensure consistency in their agreements. They can reduce the risk of errors or omissions in legal documents. 

Dock offers advanced tools to streamline the review and approval process. Businesses can utilize the automated workflows to route the contract to relevant reviewers and approvers. They can use triggered notifications and deadlines to avoid unnecessary delays or troubles. Moreover, AI and OCR technologies allow users to extract relevant clauses and terms within minutes. Thus, there’s no need to go through hundreds of documents manually during the review process.

Conclusion

Contracts outline the terms of the business agreement, outlining each party's responsibilities and rights. It enables parties to understand what they’re agreeing to, including the deliverables, durations, payments, liability, etc.
However, drafting a contract can be daunting, filled with legal jargon and potential pitfalls.

Dock contract management software offers tools to streamline the entire contract lifecycle, including drafting. There are pre-approved templates and clause libraries to fast-track the authoring process. The automated workflows ensure smooth sailing in reviewing contracts. AI can do manual contract tasks in minutes without the risk of human error. Arrange a demo now to learn more about how our contract-related solution can simplify your life.