5 points to note before drafting a contract

Whenever you are given a task to draft a contract, ditch the standard templates available the first time. Create one yourself and compare it with the available template to see how you fared. Yes, it’s extra work, but if you don’t do this exercise right at the beginning, chances are that you never will. Once you work on a standard template, you will be predisposed towards that language. You will end up using the same flowery and long sentences full of legal jargon, without ever thinking the ‘why’ behind it. You will always believe that this is how a contract should be.

A time will come when the legal advisor of the opposite party will ask you why a certain clause is written that particular way, and you won’t have any answer except ‘this is our company’s/firm’s standard clause’, and that is a bullshit explanation any way. So do the hard work once and you will never be caught off-guard in a negotiation.

Here are 5 points to note before you undertake an exercise to draft a contract.

draft a contract

1. A contract can be written in simple language.

Many of you might feel that you can’t draft a contract because you don’t know the correct terms to use. Well, you are wrong. A contract need not be verbose and full of legalese. You don’t have to use “showeth” and “witnesseth”. A contract written in simple English, consisting of short, crisp sentences is much more appreciated than one which can’t be understood by anybody.

2. Know the scope very well.

Scope of work is the very reason why the parties are entering into the contract. Unless you know and understand the scope very well, you won’t be able to anticipate future issues and provide safeguards in the draft. This is the heart of the contract and however technical the work may sound, you should sit down with your client or the business team to understand it well.

To share a personal example, my Projects team sent me a set of tender documents for civil construction consisting of forty pages of terms and conditions for my approval. I saw that the set didn’t contain other sections like Safety Norms and the Bill of Quantities. I asked for them and was given twenty more pages. It was my first time with such a contract and I needed to understand it fully before doing my job. I called up the Finance Controller and discussed with him the process of awarding the tender. Then I discussed the Bill of Quantities with the Project Manager to understand how a civil contract on re-measurement basis works and its difference vis a vis a Lumpsum contract, Turnkey contract, Design and Build and so on. My understanding helped me immensely to insert appropriate clauses to safeguard my company’s interests. I could have taken the easy way out and downloaded a template from the internet or take the ones being used by other departments of the company, but then I would have never been as comfortable with this type of contract as I am now.

3. Consideration is key.

The next important fact to know before you draft a contract is the consideration. Who is paying whom, how much is being paid, who has the liability to pay tax, how much interest is being levied as delay interest, how much time is allowed for payment, what is the mechanism to raise dispute on an invoice – are all questions to be asked. If scope is the heart, then consideration is the brain of the contract and you can’t afford to make any mistake in the same while you are drafting a contract. A lot of times, the consideration is set out as an annexure, which in my personal opinion is not a good practice. They should feature prominently in the body.

4. Fire your imagination

You may say that how am I going to anticipate what all legal safeguards should be built in the contract at this stage. Well, you are being paid precisely for that reason. Once you know the scope of work, sit down and think through the various scenarios that can arise. You don’t even need tons of legal knowledge for that exercise – just think like a rational, logical man. You will soon realise that once you are confident about the work and the process, you are easily able to identify areas of potential risk. The more you practice, better you will be. Soon, when you begin working on standard templates or drafts provided by opposite parties, this skill will come in very handy.

5. Definitions need drafting too

Definitions serve a great purpose in making your draft crisp and concise, without having the need to explain all of it every time. Contrary to what you will see in many contracts, you don’t need to define each and every term which has plain meaning. Many a times, the negotiation of a contract gets stuck at the second clause ie. Definition and becomes a long-drawn process. To avoid such a scenario, know when to give a list of definitions at the beginning or when to just define the terms as you go along when you are drafting a contract.

If you want to learn more, you must read “Point Made: How to write like Nation’s Top Advocates” (Amazon link here) by Ross Guberman. Though this book is geared towards writing legal briefs, it contains valuable lessons culled from America’s top advocates which is applicable to all legal writing, especially contract. If you have to read one book outside the realm of text books, then let it be this.

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