What are the key steps to ensure contract terms are enforceable?

As a business relationship manager, you need to ensure that the contracts you negotiate and sign with your clients, suppliers, and partners are legally binding and enforceable. This means that the contract terms and conditions are clear, fair, and consistent with the applicable laws and regulations. If you fail to do so, you may face disputes, lawsuits, penalties, or losses that could damage your reputation and business performance. In this article, we will discuss the key steps to ensure contract terms are enforceable and how to avoid common pitfalls.

1 Know your objectives

Before you enter into a contract, you should have a clear understanding of your business objectives, expectations, and risks. What are you trying to achieve with the contract? What are the benefits and costs involved? What are the potential challenges and uncertainties? You should also research the background, reputation, and financial situation of the other party. This will help you to assess their credibility, reliability, and compatibility with your goals. Knowing your objectives will help you to define the scope, duration, and deliverables of the contract, as well as the rights and obligations of each party.

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Bhaktavatsal Avadhani

Industrial Market l Business Development I Key Accounts I Adhesives I Sealants I Tapes l Foams
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1.Most often in business contracts there are standard terms of confidentiality and proprietary know how which have limited scope of redrafting but may still warrant some scrutiny. 2.But the major focus is always on the more expected commercial/cost/quality risk factors.It is important not only to incorporate those points in all fairness to either parties. It is much more important to have a proper discussion to ensure that these are clearly understood 'correctly' by both. That helps ensure proper and smooth implementation and avoid costly 'renegotiations' later on.

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Ricardo G Barcelona

Energy Transition / Author / Adviser
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A contract is a record of what was agreed between the contracting parties. For this reason, using plain language that is understandable to both that clearly states what was agreed, and why, is the start of a sustainable relationship. As in any contract, what each party puts in (or contributes) and what they expect to get out of the relationship, has to be balanced. One way of testing this is to pose this question: Are you prepared to accept the terms that you are proposing the other party should accept? If the answer is no, perhaps one should re-examine the terms. What you are not willing to accept as an obligation is likely to be found objectionable by the other party.

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Alexandre Ferraz Amaral Arouche Toledo

CFO | Head of finance | Treasurer | Controller
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Antes de formalizar qualquer contrato, é imperativo desenvolver uma compreensão minuciosa dos objetivos de negócios, expectativas e riscos envolvidos. Isso não apenas estabelece as bases para negociações eficazes, mas também ajuda a articular claramente as metas que se espera alcançar por meio do contrato. A identificação precisa dos objetivos de negócios permite que as cláusulas contratuais se alinhem estrategicamente com as necessidades da empresa, minimizando potenciais pontos de conflito. Além disso, uma análise aprofundada dos riscos inerentes ao acordo possibilita a implementação de medidas preventivas e a inclusão de disposições que mitiguem possíveis adversidades.

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Rafath Alam

X switchgears & control pvt ltd
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"McDonald brothers" astonishingly agreed to a “handshake” deal whereby they would receive royalties of 1% of the revenues Mr.Kroc would make, in perpetuity. This handshake deal was never honoured and the Mcdonald brothers were not able to prove it. Key Steps for a good contract:- 1)The above Mcdonald Fiasco is a reminder for that each & every item/Term discussed should be put into Contract 2) Legality & Duration has to mentioned 3) Financial Obligations should be clear 4) Confusing terminology should be avoided 5) Ownership clause is very Important who owns what 6) Approval process should be tough & slow for any future changes in contract ,if any. "Business is War" It is Dog eat Dog place...so Business contracts play a vital role.

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Chewe Christopher

Credit Risk Analyst at Standard Chartered Bank
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A contract summaries the framework of Business objectives, expectations and risks into a written document. In other words it insulates the terms of the agreement into a written document .

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2 Draft clear and precise terms

The contract terms and conditions are the core of the contract. They specify the details of the agreement, such as the parties, the subject matter, the price, the payment terms, the performance standards, the warranties, the liabilities, the termination clauses, and the dispute resolution mechanisms. The contract terms should be clear and precise, leaving no room for ambiguity or interpretation. They should also be consistent with the relevant laws and regulations, such as consumer protection, privacy, intellectual property, tax, and trade laws. You should avoid using vague or generic language, such as "reasonable", "best efforts", or "as soon as possible", as they may lead to confusion or disagreement. You should also avoid using contradictory or inconsistent terms, such as different definitions, dates, or numbers in different sections of the contract.

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Alexandre Ferraz Amaral Arouche Toledo

CFO | Head of finance | Treasurer | Controller
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A redação de termos contratuais claros e precisos é essencial para estabelecer uma base sólida para o entendimento mútuo entre as partes envolvidas. Ao articular cada cláusula de forma inequívoca, asseguramos que as expectativas e obrigações de ambas as partes sejam compreendidas de maneira consistente. A linguagem precisa elimina ambiguidades e reduz a probabilidade de interpretações conflitantes, promovendo a transparência e a confiança. Cada termo deve ser meticulosamente redigido para refletir a intenção das partes, levando em consideração cenários potenciais e contemplando soluções para possíveis desafios.

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Abiodun Ogunbiyi

Debt Recovery Manager
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Clearly define the offer made by one party and the acceptance of that offer by the other. Both parties must have a mutual understanding of the terms for the contract to be valid.

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3 Review and negotiate the terms

Before you sign the contract, you should review and negotiate the terms and conditions with the other party. You should ensure that the terms reflect your objectives and interests, and that they are fair and balanced. You should also identify and address any gaps, errors, or discrepancies in the contract. You should not accept any terms that you do not understand, agree with, or can comply with. You should also not make any promises or commitments that are not written in the contract. You should seek legal advice if you have any doubts or questions about the contract terms and conditions. You should also document any changes or amendments that you make to the contract in writing.

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Alexandre Ferraz Amaral Arouche Toledo

CFO | Head of finance | Treasurer | Controller
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A revisão e negociação dos termos contratuais desempenham um papel crucial na construção de acordos robustos e equitativos. Ao iniciar esse processo, é imperativo examinar minuciosamente cada cláusula para identificar potenciais ambiguidades, garantindo uma interpretação unívoca. Durante as negociações, busca-se um equilíbrio que atenda aos interesses de todas as partes, considerando fatores como riscos, responsabilidades e benefícios. A comunicação aberta é essencial para abordar preocupações e encontrar soluções que otimizem os resultados para ambas as partes. A capacidade de negociar efetivamente não apenas fortalece a relação entre as partes, mas também contribui para a criação de contratos mais resilientes.

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Abiodun Ogunbiyi

Debt Recovery Manager
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Ensure that all essential terms are included in the contract. This includes details such as the parties involved, the subject matter, payment terms, delivery terms, and any other crucial elements.

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4 Sign and execute the contract

Once you are satisfied with the contract terms and conditions, you should sign and execute the contract with the other party. You should ensure that the contract is signed by authorized representatives of each party, and that it is dated and witnessed. You should also ensure that the contract is in writing, as oral contracts may be difficult to prove or enforce. You should keep a copy of the contract for your records, and follow up with the other party to confirm their receipt and acceptance of the contract. You should also monitor and evaluate the performance of the contract, and communicate with the other party regularly to ensure that the contract terms are met and any issues are resolved.

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5 Enforce and modify the contract

If the other party breaches or violates the contract terms and conditions, you should take steps to enforce and protect your rights and interests. You should notify the other party of the breach and request them to remedy it within a specified time frame. You should also document and collect evidence of the breach and its impact on your business. You should try to resolve the dispute amicably and cooperatively, using the dispute resolution mechanisms provided in the contract, such as mediation, arbitration, or litigation. You should also consider modifying the contract terms and conditions if there are changes in the circumstances, needs, or expectations of either party. You should negotiate and agree on the modifications with the other party, and document them in writing as an addendum or a new contract.

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6 Learn and improve

Finally, you should learn and improve from your contract experiences. You should review and analyze the outcomes and feedback of the contract, and identify the strengths and weaknesses of your contract management process. You should also seek and share best practices and lessons learned with your colleagues and stakeholders. You should update and refine your contract templates, policies, and procedures to reflect the latest legal and business developments. You should also enhance your contract skills and knowledge, and seek professional development opportunities. By doing so, you will be able to ensure contract terms are enforceable and achieve better business results.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Derrick Jackson, AAMS®

Wealth Advisor - Helping Investors Achieve and Maintain a Work Optional Lifestyle. Managing Advisor at Ryleigh Wealth Management
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Expect the best but plan for the worst, you won’t regret it. It’s better to pull out a contract once things go south and find out you’re covered than find out you didn’t plan for a situation that you now find yourself in.

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What are the key steps to ensure contract terms are enforceable?

1

2

3

4

5

6

7

1 Know your objectives

2 Draft clear and precise terms

3 Review and negotiate the terms

4 Sign and execute the contract

5 Enforce and modify the contract

6 Learn and improve

7 Here’s what else to consider

Business Relationship Management

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What are the key steps to ensure contract terms are enforceable?

1

2

3

4

5

6

7

1 Know your objectives

2 Draft clear and precise terms

3 Review and negotiate the terms

4 Sign and execute the contract

5 Enforce and modify the contract

6 Learn and improve

7 Here’s what else to consider

Business Relationship Management

Rate this article

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