What is Contract Planning?
Contract Planning is the process of planning to draft a Contract that protects an organisation, meets the organisation's needs, and facilitates the carrying out of a project or a sale or purchase. Contract Planning involves Contracts Professionals and their Lawyers identifying the goals and objectives of the organisation for that project, sale or procurement, gathering and discussing information to enable the Contract to be drafted, selecting the correct form of contract, determining appropriate risk allocation, and conducting the necessary approval process before they commence Contract Drafting.The importance of Contract Planning
Contract Planning is crucial for all types of organisations who need to carry out a project, procure goods and equipment, sell items to their clients, and carry out any number of different arrangements.
It is one of the 7 Pillars of Contracting, and a key part of contracting strategy. It also helps to minimise risks, enable operations to take place as planned, ensure compliance with legal requirements and contractual obligations, put in place key milestones, improve the outcomes of contracts, make sure the contract delivers the necessary outcomes for key stakeholders, allow effective contract management by the contract manager, risk management and project management.
A well-planned contract can help make sure that proper consideration has been provided under the contract, establish clear expectations, state clear roles, responsibilities and obligations for each party, introduce any required service level agreement, reduce misunderstandings, and provide a solid basis for resolving disputes.
Where multiple contracts are part of the same project, it becomes even more critical to plan the contracts and how they fit within the project as a whole.
What is the Contract Planning process?
This process typically involves several steps.
1. Identifying the needs and goals of the business
This step involves understanding the specific needs and goals of the organisation and ensuring that the contract supports these objectives. For example, a long term contract will need to be drafted differently than a short term contract for services.
2. Gathering information and data relevant to the contract
In this step, the contract planner collects data, information, and other relevant materials that will inform the drafting of the contract. The Lawyer can discuss with their Instructing Officer any necessary performance measures to include in the contract and how monitoring performance of the contractor will take place. And they can develop a clear understanding of how their organisation will be responsible under the document.
3. Identifying specific issues the contract will need to deal with (eg Force Majeure, Termination for Convenience, Bank Guarantee, Advanced Payment Guarantee, etc)
By identifying the significant contract terms for the projects in advance, you can review the template/precedent contract and determine how closely matched it is to the contract you need to draft.
You also then have a checklist to tick off near the end of the contract drafting process – to make sure you dealt with all the relevant issues.
Benefits of Contract Planning
Improved Contract Outcomes
Effective Contract Planning helps ensure that contracts are clear, well-structured, and aligned with the needs of the business.
This can result in improved contract outcomes, such as increased efficiency and reduced disputes.
Increased Contract Compliance
Proper Contract Planning can help ensure that contracts are compliant with relevant laws and regulations, reducing the risk of legal action and penalties.
Better Contract Management
A well-planned contract provides a clear framework for managing the contract, reducing the risk of misunderstandings and improving overall contract performance.
Stronger Relationships with Contracting Parties
A well-planned and structured contract can help establish trust and improve relationships between the parties, promoting cooperation and collaboration.
Common Challenges in Contract Planning
Lack of time
When a project urgently requires a contract, there is often less time for the Lawyer to pay attention to details or carefully plan the contract before drafting
Poorly-Drafted Templates/Precedents
These are widely used in many organisations, but are often poorly-drafted and not well-understood by the Lawyers and Commercial Staff in the organisation.
Use of templates and precedents can reduce the time that Lawyers and their Instructing Officers spend discussing the project and how it needs to be carried out.
Often, templates and precedents encourage Lawyers to fit the project within the template/precedent, rather than amending the template/precedent to suit the project.
Lack of Standardised Contract Templates/Precedents
The lack of standardisation in contract templates and precedents within an organisation can lead to confusion and errors in the Contract Planning process. It can also lead to inconsistent results, depending on which template or precedent is used.
Additionally, some templates/precedents may be tailored to the organisation’s preferred risk allocation, but others may not, which may cause problems for the project if it’s later found not to comply with the necessary risk allocation.
Limited Resources
Many organisations face challenges in Contract Planning due to limited resources, such as a shortage of personnel or insufficient budget allocation.
If there are not enough Lawyers in the Legal Team, there may not be enough time for them to comprehensively plan out a contract before drafting.
Developing a Contract Planning Template
Developing a Contract Planning Template helps to ensure that the Contract Planning process is consistent, efficient, and effective.
Having a Contract Planning Template will help the Instructing Officer and Lawyer to establish clear goals and objectives, know which issues to discuss and which questions to ask during the Initial Instructions Meeting, identify the key components of the contract that is required, and determine the resources and the timeframe needed to complete the contract drafting process.
Best Practice
Best practice is for organisations, Lawyers and their Instructing Officers to take a proactive approach to Contract Planning and to seek out the resources and tools that will help them to effectively plan their contracts before beginning drafting.
A good Contract Planning Template is one such tool.
Conclusion
Contract Planning is a critical process that helps organisations prepare, negotiate, and execute the contracts they require in their day-to-day business.
Effective Contract Planning involves identifying needs and goals, gathering information and making sure the Lawyer has all the information needed to be able to draft the contract.
By making use of a Contract Planning Template such as the one below, Lawyers are able to identify exactly what information they require from their Instructing Officer, and ensure there are no gaps in the information they have received before they begin drafting the contract.
Incorporating effective Contract Planning into business and legal processes can help to reduce risks, improve contract outcomes, and enhance relationships with contracting parties.
