12 Common Contract Drafting Mistakes
When it comes to drafting contracts, precision and clarity are paramount. A poorly written contract can lead to misunderstandings, financial losses, and legal disputes. Below, we delve into common contract drafting mistakes and provide strategies for avoiding them.
1. Failing to Clearly Document Products or Services
One of the most important aspects of a contract is specifying exactly what products or services will be delivered. A vague description leaves room for confusion, disputes, or unmet expectations.
To avoid this, ensure your contract provides a detailed list of the products or services you are agreeing to deliver. This should include specific descriptions, quantities, timelines, and payment terms. For example, if you are providing a service, specify the scope of the work, milestones, deadlines, and any deliverables. Using an Order Form or similar document alongside the contract can also ensure these details are fully documented and clear to both parties.
2. Not Recording All Agreed Terms
Many businesses make the mistake of relying on verbal agreements for additional services or changes made during informal conversations. However, verbal commitments are often forgotten or misinterpreted, leading to misunderstandings.
Everything agreed upon, including verbal agreements, should be recorded in the contract. This ensures there is no ambiguity about the terms. For instance, if you verbally agree to offer an additional service, make sure this is included in the written contract. This way, both parties have a clear reference point and can avoid disputes over what was promised.
3. Vague Descriptions of Services
Vagueness in the description of services or deliverables is another common issue. For example, a phrase like "consulting services" can be too broad and open to interpretation. This can lead to disagreements about what is included, the quality of the service, or whether deadlines were met.
To avoid this, always be as specific as possible about the services you are providing. For example, instead of saying “consulting services,” specify “consultation on marketing strategy, including three strategy sessions and a final report by [date].” Providing clear details about the work, including any deadlines, milestones, and expected results, reduces the likelihood of disputes later on.
4. Providing Insufficient Information
Sometimes, businesses may fail to provide sufficient information about costs, timelines, or scope of work, assuming that certain details will be understood implicitly. However, without clear definitions, these gaps can create issues later.
Even if some aspects are uncertain, like costs based on hourly rates or timelines that depend on third-party vendors, make sure to set clear boundaries. For example, instead of leaving the total cost open-ended, specify a cost range or a “not-to-exceed” figure. Similarly, if the timeline depends on external factors, define the timeline’s parameters. This ensures that both parties are aligned and reduces the risk of future misunderstandings.
5. Using Ambiguous or Complex Language
Using legalese or overly technical language in contracts can confuse the parties involved, particularly if one or both are not familiar with legal jargon. While contracts need to be precise, they should also be easy to understand.
To avoid this, use simple, straightforward language. If technical terms must be used, define them clearly in the contract. Avoid industry-specific jargon that may not be universally understood by all parties. By keeping the language clear and understandable, you help ensure that everyone knows what they are agreeing to, which can prevent legal disputes.
6. Relying on Generic Templates
Many people use generic contract templates as a shortcut, assuming they will meet their needs. While templates can serve as a helpful starting point, they may not be suitable for every situation. Templates often lack the necessary customisation to address specific details or requirements of the project, leading to gaps in the contract or legal noncompliance.
Always customise templates to meet the unique needs of the agreement. Be sure to tailor the language and terms to reflect the project, client, and jurisdiction. It’s also important to ensure that the template complies with local laws and regulations. A template should not be used as a substitute for a fully tailored contract.
7. Going Without Legal Review
While some businesses choose to draft their own contracts, this can be risky. Even small errors in wording can have serious legal implications. Having a lawyer review the contract ensures that all terms are enforceable and that your interests are protected.
Legal professionals can identify potential issues or omissions that you may have overlooked. Having legal review also ensures that the contract is compliant with applicable laws, providing an added layer of protection.
8. Neglecting to Define Consideration
Consideration is the value exchanged between the parties in a contract. If consideration is unclear or insufficiently defined, the contract may be deemed unenforceable. Courts often scrutinise the adequacy of consideration to ensure that each party is providing something of value.
To avoid this issue, make sure to clearly specify the consideration in the contract. This includes any payment terms (e.g., amount, timing, and method of payment) and the specific goods or services being exchanged. For example, if you are providing a service, clearly state the fee and what will be delivered in return.
9. Lack of Intention to Create Legal Relations
For a contract to be enforceable, both parties must have the intention to create a legally binding agreement. This is often assumed in commercial contracts, but can be an issue in informal agreements, especially between family or friends.
To avoid confusion, include a clause in the contract that explicitly states both parties intend to create a legally binding agreement. This clause ensures that the contract is treated with the seriousness it deserves and protects against misunderstandings regarding its enforceability.
10. Not Including Governing Law and Jurisdiction Clauses
A common mistake is failing to include a clause that specifies the governing law and jurisdiction. If a dispute arises, parties may find themselves in an unclear situation regarding which legal framework will govern the contract or where the dispute should be resolved.
To avoid jurisdictional disputes and legal complications, clearly specify the governing law and jurisdiction in the contract. This helps determine where disputes will be resolved and which laws will apply. For example, if your contract is with a company based in another state or country, include a clause that specifies which state’s or country’s laws will govern and where any legal actions will take place.
11. Ignoring Termination Clauses
A termination clause outlines the conditions under which a contract can be ended before the agreed completion. Without a clear termination clause, disagreements may arise regarding how and when the contract can be terminated, leading to costly legal disputes.
Include specific conditions for termination in your contract. For example, you should outline the reasons for termination, such as a breach of contract or mutual agreement, and set the terms for how the termination will be executed, including notice periods and method of communication (e.g., written notice). This ensures both parties understand their rights and responsibilities should the need for termination arise.
12. Not Reviewing and Proofreading
The final and most common mistake is failing to review and proofread the contract before signing. Even minor typographical errors, inconsistencies, or omitted clauses can have serious consequences.
Always take the time to carefully proofread your contract before finalizing it. Look for any inconsistencies or unclear wording that could lead to confusion. Having a second set of eyes review the document is also beneficial to catch any mistakes you may have missed. Thorough proofreading helps ensure that the contract is accurate, complete, and enforceable.
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