Mistakes are often made when Drafting a Contract
As everyone who drafts Contracts (whether Contracts Lawyers or Contracts Professionals) knows, it is easy to make a mistake. Mistakes in Contract Drafting can have minor conseqences (eg a typo that is easily corrected by the reader to the obvious meaning) or major consequences (eg a typo that has the effect of making the Contractor's liability under the Contract limited when that was not the intention).
Some Contract Drafting mistakes are not easy to pick up
Unfortunately, in my experience, some Contract Drafting mistakes are not obvious and cannot be picked up by a spelling and grammar checker. Because of this, it is important that all Contract Drafters read carefully through the Draft Contract before they finalise it, paying attention to particular areas each time.
Here's how I check that a Contract is ready for execution...
My proofreading method for complex Contracts involves at least 2 or 3 readthroughs, and each time I focus on different elements. For example:
- Is the structure of the Contract right?
- Does each clause work in its own right?
- Do the clauses work when read together? This is often combined with reviewing the Definitions section.
- Is the intent of the agreement between the parties captured in the Draft Contract?
- Are there any clause referencing (ie cross-referencing) errors?
- Are there any typographical or grammatical errors?
- Are there any formatting errors (eg where you need to use "Keep with Next" in Word to move a heading on the last line of a page down to the next page with the rest of its clause?
Here are some of the major mistakes that Contract Drafters make and their consequences
1. Failing to Use the Right Type of Contract
Mistake
Failing to use the right type of Contract for your Project Delivery Method.
Consequences
This means that the tool [the Contract] is not right for the job [the Project], which can cause:
- significant problems;
- cost overruns for the Project as a whole; and
- disputes between the parties.
When it comes to Project Delivery, using the right type of Contract is crucial for ensuring a successful outcome. The Contract acts as a tool that governs the relationship between the parties and sets out their respective rights and obligations. However, many Professionals make common mistakes when it comes to selecting and drafting Contracts, which can lead to significant problems down the line.
2. Drafting a Contract Before the Terms Have Been Agreed
Mistake
Drafting a Contract before the terms have been agreed.
Consequences
You will likely have to redraft it over and over again during negotiations.
A common mistake Professionals make is drafting a contract before all the terms have been agreed upon. This often happens when negotiations are ongoing, and the parties are eager to get the ball rolling. However, premature drafting can result in frequent redrafting as negotiations progress. This not only consumes valuable time but also increases the chances of missing important details or failing to capture the true intentions of the parties.
3. Getting the Basic Details Wrong
Mistake
Getting the basic details wrong, eg party names.
Consequences
This could make the Contract unclear, ineffective or give the other party a basis for challenging its terms (eg as being void for uncertainty).
Attention to detail is paramount when it comes to Contract Drafting. Failing to get the basic details right, such as the correct identification of the parties involved, can have serious consequences. Inaccurate party names can make the Contract unclear or ineffective, providing the other party with a basis for challenging its terms (eg claiming the Contract is void due to uncertainty).
4. Not Keeping in Mind Who Your Client Is or What Your Organisation Needs
Mistake
Not keeping in mind who your client is (for Lawyers) or the needs of your organisation (for Contracts Professionals).
Consequences
The Contract may be unworkable if you don't tailor the drafting of the Contract, and the risk allocation in the Contract, to your client or organisation. And importantly, you need to understand how your client/organisation operates before you draft clauses that place obligations on your client or organisation.
For example, can your client's or organisation's Accounts Department even pay an invoice within 14 days if the Contract terms state this time frame?
Tailoring the contract to your client's or organisation's specific needs and risk appetite is essential. Understanding how your client/organisation operates, including their financial capabilities, is crucial before drafting clauses that place obligations on them. For example, promising 14-day invoice payment terms in the Contract may be unrealistic if your client's or organisation's internal processes are not set up for this short a timeframe.
Failure to consider your client's or organisation's circumstances and requirements can result in a Contract that is not fit for their purposes.
5. Failing to Follow Instructions
Mistake
Failing to follow your client's instructions.
Consequences
This is likely to result in you drafting a Contract that is not fit for purpose for your client.
Hint: this is really not great for a Lawyer!
The exceptions to this are when the client's instructions are unrealistic, impossible, or would cause problems for the client (ie inserting a clause that is illegal).
Note: There is no problem with discussing different options with your client where you believe there is a better approach than the one they are suggesting.
As a Lawyer, it is your responsibility to follow your client's instructions diligently. Deviating from these instructions without valid reasons can lead to drafting a Contract that does not align with your client's objectives. This is not ideal for either party involved and can create unnecessary disputes.
However, it is important to note that there are exceptions to this rule, such as when the client's instructions are unrealistic, impossible to fulfill, or would likely cause legal problems.
6. Not Keeping Track of Consequential Amendments
Mistake
Not keeping track of consequential amendments to the Contract.
Consequences
You are likely to end up with missing clauses, meaningless definitions, broken or incorrect clause references, Contract Particulars that have line items missing, and Schedules that have the wrong number.
And some of these errors may have a significant impact on the Contract and lead to costly disputes. For example, a definition that gives the wrong meaning to its effective clause, or a clause reference leading to a clause that alters the meaning of an obligation or liability.
During the drafting process, it is common to make amendments and revisions to the Contract. However, failing to keep track of these consequential amendments can lead to a host of issues. Missing clauses, meaningless definitions, broken or incorrect references, and incomplete Contract Particulars are just a few examples of the problems that can arise.
As a corollary, and to ensure the Contract's integrity, it is essential to maintain a comprehensive record of all amendments made throughout the negotiation process.
7. Clauses That Don't Work Together or Serve Their Purpose
Mistake
Clauses that don't work with each other or don't do what they need to do.
Consequences
The Contract will not work properly, will have a construction that you didn't intend, will not protect the client, or can be challenged by the other side (eg as being void for uncertainty).
A well-drafted Contract should have clauses that work harmoniously and effectively achieve their intended purpose. However, it is not uncommon to encounter contracts with conflicting or ambiguous clauses. Such contracts may not function as intended, fail to protect the client's interests, or even be challenged by the other party as being void due to uncertainty.
Careful attention should therefore be paid to ensuring that all clauses work together seamlessly and serve their intended purpose.
8. Failing to Properly Define the Scope of Services or Works
Mistake
Failing to properly define the scope of the services or works that are the subject matter of the Contract.
Consequences
This can have serious consequences, as it means the client may not be able to hold the counterparty to the obligations it was supposed to perform under the Contract.
A clear and comprehensive definition of the scope of services or works is essential in any Contract. Failing to do so can have serious consequences, as it leaves room for interpretation and potential disputes. Without a properly defined scope, the client or organisation may not be able to hold the counterparty accountable for the obligations they were supposed to perform. This can lead to delays, cost overruns, and dissatisfaction with the project outcomes.
9. Not Properly Executing the Contract or Ensuring Proper Execution
Mistake
Not properly executing the Contract or not ensuring it is properly executed by the counterparty.
Consequences
The counterparty may be able to refuse to perform some of its obligations or challenge the validity of the Contract (or both) in the event of a dispute.
Execution of the Contract is a critical step in establishing its legal validity and enforceability. Failing to properly execute the Contract or neglecting to ensure its proper execution by the counterparty can have dire consequences. The counterparty may refuse to perform certain obligations or even challenge the validity of the Contract in the event of a dispute.
It is crucial to pay attention to the execution formalities and ensure that all parties involved fulfill their obligations in this regard.
10. Not Keeping Track of All Variations
Mistake
Not keeping track of all variations to the Contract.
Consequences
This applies to both variations to the scope of the works and Deeds of Variation amending the Contract terms by agreement of both parties.
It is critical the parties keep track of these variations, otherwise they will not know what the ultimate terms of the Contract are
Throughout the course of a project, changes and variations to the Contract are likely to occur. These variations can affect the scope of works, timelines, or even the contractual terms themselves.
It is imperative that all parties involved keep track of these variations. Failure to do so can result in confusion, misunderstandings, and disagreements about the ultimate terms of the contract. Clear documentation and communication are essential to avoid disputes arising from untracked variations.
Bonus mistake - Not Storing Contracts in a Proper Contract Administration System
In the fast-paced world of Projects and Contract Management, keeping track of numerous contracts can be challenging. However, failing to store Contracts in a proper Contract Administration system can lead to significant issues.
Without a centralised system for managing Contracts, it becomes difficult to retrieve and review important documents when needed. This can result in delays, loss of information, and increased risk of non-compliance. Implementing a robust Contract administration system is crucial for effective Contract Management and mitigating risk and potential problems with the project.
Conclusion
While it is always best to draft your Contract so that it does not have mistakes, it's not the end of the world if you do discover a contractual error.
Speak with your Legal Department and get them to fix the mistake as soon as possible. If the Contract has already been executed, speak with the other side and request that you vary the Contract to rectify the mistake.
Unless the error vastly benefits the other party, they should be amenable to fixing the Contract so that it reflects what was actually agreed.
If the other party refuses to agree to rectify the mistake, you may need to consider starting the Dispute Resolution Process under the Contract, with the view of potentially going to Court to argue the Common Law Doctrine of Mistake. Not ideal, but it can be done.
We go over these and other mistakes in more detail - from the perspective of both Contracts Lawyers and Contracts Professionals - in my Contract Drafting Course: The Fundamentals.
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