Contract Clauses – How to draft a contract clause that actually works!

Computer desk with a laptop and a mug of coffee, overlaid with an example of the first part of an indemnity provision and the words "Contract clauses".

The importance of contract drafting skills

For any lawyer who drafts contracts, it is critical they learn how to draft a contract clause. This is one of the key components of good contract drafting. Lawyers who work in law firms, in-house or who otherwise provide legal services all need to know this fundamental skill.



 Check out our post about Why it’s so hard to learn practical Contract Drafting Skills in 2023 (and what you can do about it)

Drafting a contract clause is a core skill for all Contracts Lawyers

There are many components and steps to drafting a contract. One of the core skills that Contract Lawyers require is the ability to draft a clause of the contract.

This applies whether the Lawyer drafts the clause from scratch (ie blank page) or uses a template or example clause. In each case, the skills required to draft the clause are the same – it’s just the starting point that is different.


All Contracts Lawyers need to know how to plan, structure and draft a clause of a contract. From scratch or using a template or example document

This post gives you the best tips possible to help you with your next drafting task. Experienced Lawyers, Junior Lawyers or Law Students – there’s something here for everyone.

What is a contract clause?

A contract clause is part of a contract describing the obligations of the parties for one contractual issue or process. Well-drafted clauses contain sub-headings, paragraphs and numbering, and they are structured as a workflow that’s easily understood by non-lawyers.

Taken together, each clause adds up to set out the contract’s terms for the parties involved in the contractual relationship.


An example contract clause. Note the clean lines of the draft, how each “thought” is in a different paragraph, and how there are headings and subheadings (plus lots of white space)

Examples of common clauses are definitions, interpretation, the warranties clause, the payments clause, the dispute resolution clause, the termination clause, and the various boilerplates.

How can you draft a clause from scratch?

Here is a step-by-step guide about how to draft an effective contract clause that ensures the contract as a whole meets the needs of the project.

Step 1: Plan

Consider the purpose of the clause and how it is meant to work with the other contractual obligations

Before you begin drafting, ask yourself what you are trying to achieve with the clause. Are you trying to define the payment terms? Are you trying to outline the responsibilities of each party?

Whatever the purpose of the clause, it is important to have a clear understanding of what you wish to accomplish before you begin drafting.

INSIGHT – When considering the purpose of the clause, it is also important to think about what the contract is meant to achieve for the contracting parties. For example, if you are drafting a Purchase of Goods Contract, include a clause outlining the delivery and acceptance of the goods. If the contract is an Alliance Agreement, you will need to include clauses about collaboration between the parties.

You will also need to understand how the clause is meant to work with the other contractual obligations. For example, will you require more than one clause on a related subject matter?

As an additional requirement in all cases, the clause needs to be legally binding.

QUESTION TO ASK YOURSELF: What are you trying to achieve with this clause? And how will this clause fit in with the other clauses while being legally binding?

Step 2: Structure

Write down the structure of the clause, including subheadings

Once you have a clear understanding of the purpose of the clause, it’s time to start drafting. Ask yourself how the clause should be structured in order to achieve its purpose. A good example is that, if the clause is outlining payment terms, it might make sense to break it down into subheadings such as “Payment Schedule” and “Late Payment Fees.”

INSIGHT: Deciding on the subheadings of a clause in advance is a great way to make sure you have the structure correct when you draft a contract. Also consider whether any related clauses are required – it may save time to draft these together.

QUESTION TO ASK YOURSELF: How should the clause be structured in order to achieve its purpose?

Step 3: Determine

Consider and decide on the appropriate risk allocation of the particular clause (ie is it Principal-friendly or Contractor-friendly)?

When you draft a contract, you need to understand the concept of risk allocation.

Risk allocation is the process of deciding which of the contracting parties will bear the risk of a particular event occurring. This decision is usually made before the contract or the clause is drafted – the document is then drafted to reflect that particular risk allocation.

It is important before drafting a clause that you understand the intended risk allocation of that particular clause. While some clauses will simply be facilitative and will only deal with the obligations on each party to make the contract work for the project, many clauses will start out (or end up after contract negotiations) favouring one party over the other party.

For example, a clause entitling the Contractor an Extension of Time to the Date for Practical Completion may contain various time bars and qualifications on the Contractor’s ability to claim, which mean that the risk allocation in the clause is in favour of the Principal.

While a contract or clause may be drafted to reflect a particular risk allocation, during negotiations, the parties may agree on changes to the risk allocation or to a different risk allocation altogether. The Lawyer would then draft amendments to the contract or clause to ensure that the agreed risk allocation is captured.

INSIGHT: Determining the risk allocation in a contract requires a higher degree of expertise – this is a skill you should also try to obtain as soon as you can in order to become an expert provider of legal services.

Step 4: Describe

Spell out the obligations of each party in the clause in the order the parties would perform those obligations in real life

The next step is to spell out the obligations of each party in the clause, step by step, in the same order the parties would perform those obligations in real life. This will make it easier for both parties to understand and comply with their obligations.

Use Plain English and concise language that clearly conveys the intent of both parties. For complex clauses, it can be helpful to draw a diagram of the workflow. This will help you ensure that you have the workflow correct, that both parties understand their obligations and that the clause will be legally binding.

INSIGHT: The structure of the clause should reflect a workflow that non-lawyers can easily understand. When drafting the clause, use clear and specific language that clearly conveys the intent of both parties. Draft smart, not long, and it will make contract negotiation easier.

TIP: Draw a diagram of the workflow for complex clauses, as a way to check that you have the workflow correct and that the clause is legally binding.

QUESTION TO ASK YOURSELF: What is the workflow that the parties must follow in order to achieve the purpose of the clause and help ensure a legally binding contract?

Step 5: Draft

Use clear and specific language, and include any necessary details and contingencies

It’s now time to start drafting the clause. Either in Word or on paper is fine – as long as you are comfortable. Sometimes it is useful to write a clause out by hand where you are drafting by scratch. If you are only editing a template or example clause, it may be easier to work on the computer.

When you draft a clause of a contract, it’s important to use clear and specific language so you can avoid any confusion or misunderstandings. The way you draft one clause should be the same as the way you draft the other clauses in the contract, so that the language and tone of the contract is all the same.

Try not to be overly legalistic – Plain English is preferable. Unless there is a specific legal reason in your jurisdiction or unless your specific contract law requires it, don’t use all-caps when drafting (even in the indemnities clause).

The clause should include all details that are necessary to ensure the parties agree on the same understanding of the clause.

Consider before you draft whether the clause is facilitative or administrative in nature (eg timings and procedures for payment) or whether the clause deals with substantive rights, obligations of the parties – for example, liabilities. You can then use a different approach for the different clause types – the indemnities clause will be more focused on the relationship of the parties, whereas the payments clause will more closely resemble a workflow.

Use clause numbering (in different levels) as much as possible to break up the clause, increase readability and increase white space on the page. Also pay attention to the formatting of the clause, and make sure you cross-reference clauses as you go.

TIP: At the same time you draft the clause, also draft any definitions that are required by the clause. This will ensure that the definitions fit with the language and operation of the clause. Insert these in the Definitions section, and amend these definitions if you change the drafting of the clause (if required).

INSIGHT: Try to stick to the following formula:

    • only use one concept or idea per paragraph, and

    • add a subheading every time you start a new obligation, process or concept within the clause.

QUESTION TO ASK YOURSELF: Is the drafting of the clause clear, specific and easy to understand?

Step 6: Research

Review similar clauses in other contracts and consider industry standard provisions

For this Step, you can research similar clauses in other contracts and identify standard clauses for similar contract types and within similar industries. This will give you a better understanding of the language and structure typically used in similar clauses, and it can help you identify any potential issues or ambiguities that you should address in your own clause.

INSIGHT: This research step could be carried out sooner in the process, however leaving it until Step 6 makes it an extremely useful way to “sanity check” your own drafting and make sure you have included all the required provisions for a clause of that type.

QUESTION TO ASK YOURSELF: What are the industry standards and best practices for this type of clause when you draft a contract?

Step 7: Check

Read the draft clause thoroughly to make sure it works

Once you have completed the draft of the clause, it’s important to read it thoroughly to make sure it all hangs together and does what you want it to do. Pay attention to the defined terms used in the clause and make sure they make sense and fit with all the other definitions in the contract. Avoid using circular definitions that refer back to themselves.

QUESTION TO ASK YOURSELF: Any time I come to a Defined Term in the clase, does that Definition make sense and fit with all the other Definitions it mentions (and is not circular)? Have I drafted any new Definitions that are required?

Step 8: Proofread

Proofread the draft clause for typographical errors

Proofreading is an essential step in the clause and contract drafting process. Check for typos, especially ones that aren’t easy to pick up, such as “contact” vs “contract.” Also, check all cross-references and make sure that all relevant clauses in the contract are cross-referenced.

QUESTION TO ASK YOURSELF: Are there any errors in the clause that are going to affect the enforceability of the contract (or make it look less than professional or like it is not a well drafted contract?)

TIP: It helps immensely to print out the draft, so you can proofread the written contract and mark it up by pen. It uses different skills than proofreading in Microsoft Word, and you’ll be surprised how many additional typos you pick up.

Step 9: Learn

Want to learn more about drafting clauses? And contracts as a whole?

Drafting clauses of a contract can be a complex process, and there is always more to learn. If you want to learn more about contract drafting, sign up for my practical Contract Drafting Fundamentals Course. This course is designed for both lawyers and non-lawyers and will provide you with the skills, experience and confidence you need to draft effective clauses and whole contracts (including from scratch).

QUESTION TO ASK YOURSELF: Do you need to learn more about the fundamentals of drafting a contract in real life (for Lawyers) and working more effectively with contracts (for Non-Lawyers)?


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