Let's face it, contract drafting is no ordinary task. It's a high-stakes game that requires contract management skills like finesse, attention to detail, and a solid understanding of legal principles. One wrong move, and you could find yourself in a sticky situation.
You need to equip yourself with a contract drafting checklist. From identifying potential pitfalls to maximizing your contractual benefits, a comprehensive contract drafting checklist ensures your interests are safeguarded and your contracts are airtight.
With this checklist, you'll have the confidence to create contracts that are not just legally sound but also strategic and beneficial.
What is a contract drafting checklist?
A contract drafting checklist is a systematic tool used by legal professionals, contract managers, and business owners to ensure the comprehensive and accurate drafting of contracts.
It acts as a structured roadmap, guiding the drafter through the process of creating or reviewing contracts while highlighting key considerations and potential pitfalls.
Also read: How to Effectively Write a Contract
4 Reasons to use a contract drafting checklist
Using a checklist is essential for in-house legal counsel while drafting contracts for several reasons:
- A comprehensive review of clauses, terms, language, compliance, and more
A contract drafting checklist helps ensure that no important aspects of contract drafting are overlooked. It serves as a roadmap for legal to review and address all necessary elements of a contract, including legal compliance, risk mitigation, and clear language.
- Consistency in clauses, best practices, and company policies
A checklist for contract drafting promotes consistency across different contracts and legal counsel within the organization. It helps ensure that standard clauses, best practices, and company policies are consistently applied in all contracts, reducing the chances of errors or omissions.
- Efficiency and time-saving by streamlining contract drafting
With a checklist, legal counsel can systematically go through each item, reducing the chances of missing critical components. It helps streamline the drafting process, making it more efficient and saving time by providing a structured approach.
- Risk management by identifying and addressing risks in advance
By having a checklist, legal counsel can identify and address potential risks more effectively. It prompts them to consider key risk areas and include appropriate clauses or provisions to mitigate those risks. This ultimately helps protect the company's interests and minimize potential legal disputes.
How to create a contract drafting checklist
As a legal professional, this checklist will equip you with the knowledge and resources needed to create effective and enforceable agreements. From legal compliance and risk mitigation to clear and precise language, with this checklist, you can master the art of contract drafting and unlock the full potential of your contractual endeavors.
The checklist is designed to be flexible and adaptable, allowing it to be tailored to the specific needs and requirements of different contracts and industries. While the exact components may vary depending on the nature of the agreement, there are common elements that are typically included in a contract drafting checklist.
Here are the most important components of a checklist for drafting a contract.
#1 Identify the parties and meet all stakeholders for alignment of interests
The very first step to the checklist is to identify all parties. Without this, there can be various complications and legal challenges, such as
- Lack of binding agreement: If a party is not properly identified in the contract, there may be a question regarding whether that party is legally bound by the terms and obligations outlined in the agreement. This ambiguity can result in disputes over the enforceability of the contract.
- Inadequate representation: Failing to identify authorized individuals who can act on behalf of a party may lead to issues of insufficient representation. This can result in challenges related to the authority of the signatories and their ability to bind their respective organizations to the contract.
- Potential invalidity: In some jurisdictions, contracts may require accurate identification of the parties for the agreement to be considered valid. If all parties are not properly identified, the contract may be deemed void or unenforceable, leaving the parties without legal recourse.
- Unclear rights and obligations: Proper identification of all parties ensures clarity regarding their roles, rights, and obligations within the contract. Without accurate identification, there can be confusion or misunderstandings about who is responsible for performing certain actions or fulfilling specific obligations.
Furthermore, you must proactively meet with the stakeholders to ensure that both parties have an alignment of interests.
There’s more; by meeting with the stakeholders, you can gain valuable insights into their expectations, goals, and concerns. This allows you to tailor the contract to better address their specific needs and interests, increasing the likelihood of a mutually beneficial agreement.
This approach promotes effective communication, enhances the parties' commitment to the agreement, and mitigates potential risks associated with undisclosed or unidentified stakeholders. It also helps build trust and rapport among the parties involved, which can contribute to a more successful and harmonious contractual relationship.
#2 Define the scope to eliminate confusion and chaos
Clear definition of the contract's scope is essential to establish the parameters and expectations of the agreement. By providing a comprehensive overview of what is included within the contract, you can minimize ambiguity and align the parties' understanding of their respective roles and responsibilities.
In fact, if you skip this step, it could lead to:
- Unclear responsibilities resulting in disputes and delays: It becomes difficult to determine the specific responsibilities and obligations of each party when the scope is left undefined. This lack of clarity can result in confusion, disputes, and delays in the execution of the contract.
- Scope creep leading to increased costs: Without a defined scope, there is a risk of scope creep, where the boundaries and deliverables of the contract gradually expand beyond the original intent. This can result in additional work, increased costs, and strained resources for one or both parties. Scope creep can lead to disputes over whether the additional work falls within the agreed-upon scope or requires separate negotiations and compensation.
- Ambiguity in deliverables: A poorly defined scope can lead to disagreements about the quality, quantity, or timeliness of the deliverables, as well as disputes over acceptance criteria and performance standards.
- Difficulty in managing change: Requests for modifications or variations may lack clear guidelines, which could make evaluating their impact on the scope, timeline, and costs difficult. As a result, you will end up having to deal with protracted negotiations and disputes.
Lock it in; define the scope!
Don't leave any room for confusion or chaos. It's time to get down to the nitty-gritty and clearly outline what needs to be done. Think purpose, objectives, deliverables, timelines, and any specific criteria or requirements that'll make your contract rock solid.
By doing this, you'll make sure that everyone involved is on the same wavelength, leaving no space for misunderstandings or disputes to sneak in. So, take the time to lay out the scope in detail—it's an investment that pays off in the long run!
#3 Outline the payment terms for smooth financial transactions
When it comes to the financial side of a contract, you can't afford to leave anything to chance. That's why it's absolutely essential to outline the payment terms with crystal-clear precision.
We're talking about specifying even the obvious details like the exact amounts, the deadlines for payment, and any special conditions or considerations that may apply.
By leaving no room for ambiguity, you'll establish a solid foundation for smooth financial transactions and avoid potential headaches down the line.
But that's not all—let's talk about late fees and penalties. It may not be the most exciting part of the contract, but it's a necessary evil.
Including provisions for late fees or penalties ensures that everyone involved takes their payment responsibilities seriously. It sets the tone for prompt payments and discourages any slacking-off. By clearly stating the consequences for missed or delayed payments, you're protecting your financial interests and maintaining a fair playing field for all parties involved.
Now, imagine the chaos if payment terms were left vague or completely omitted. It would be like stepping into a financial minefield.
You could find yourself in a situation where payment expectations are unclear, causing frustration and disputes. Deadlines may be missed, resulting in delays and strained business relationships. Without proper guidance on late fees or penalties, you risk encountering payment delays without consequences, which can severely impact your cash flow and profitability.
So, take the time to outline the payment terms in your contract. Lay it all out—amounts, due dates, late fees, penalties—everything that ensures smooth financial transactions and safeguards your interests.
#4 Address warranties and representations for clarity in rights and obligations
Without clearly stating the rights and obligations of each party and the remedies available in case of breach, you may find yourself caught up in uncertainty and legal complications.
Without disclaimers or limitations of liability, you may face excessive risks and potential financial losses. Disputes may arise due to differing interpretations of the extent of liability, making it challenging to determine who should bear the consequences of certain events or circumstances. This can lead to protracted legal battles and significant financial burdens for the parties involved.
By addressing warranties and representations in the contract, you establish a clear framework for the rights and obligations of each party. You can specify the quality, condition, or characteristics of the goods or services being provided and the expectations for their performance. This helps prevent misunderstandings and provides a basis for resolving disputes should they arise.
To effectively address warranties and representations in a contract, follow these steps:
- Identify the warranties and representations: Consider factors such as the nature of the goods or services being provided, any specific promises or assurances made by the parties, and relevant legal requirements.
- Clearly state the warranties: Specify the quality, condition, or characteristics of the goods or services and any other relevant factors that the parties consider important. Be specific and avoid vague or ambiguous language to ensure mutual understanding.
- Include Disclaimers or Limitations of Liability: If necessary, include disclaimers or limitations of liability to protect the parties from certain risks or circumstances. Make sure that you’ve stated any exclusions, limitations, or qualifications related to the warranties being provided.
- Outline obligations and responsibilities: Define the obligations and responsibilities of each party in relation to the warranties and representations. Specify the actions, standards, or performance criteria that each party is expected to meet.
- Address remedies for breach: Outline the available options, such as monetary damages, specific performance, or termination rights. Be explicit about the consequences and procedures that will apply if a party fails to fulfill their warranty obligations.
- Use clear and understandable language: Avoid legal jargon or complex terminology that may lead to confusion or misinterpretation. The goal is to ensure that all parties involved can easily comprehend their rights, obligations, and any associated risks.
“Always ask yourself if what you wrote down is clear – could a judge or jury understand the section if there was ever litigation? If not, rework it. For example, think about this statement, “This Agreement will terminate on August 31, 2021.” Does this mean that it terminates when the day starts? When the day ends? And when does the day end? At the end of the business day, at midnight, and in what time zone? The better sentence is “This Agreement will terminate on August 31, 2021, at 11:59 p.m. Central Time.” Be precise and concise!”
Sterling Miller, CEO of Hilgers Graben PLLC
TEN THINGS: MAKING CONTRACTS EASIER TO SIGN
And don’t forget to include the remedies for a breach!
It isn't just a legal formality—it's like having a superhero in your corner when things go awry.
Picture this: one party fails to deliver on their end of the deal, leaving you hanging. That's where remedies come to the rescue! By outlining specific remedies, like monetary damages, termination rights, or specific performance, you're creating a failsafe system to tackle breaches head-on.
It's like having a safety net that ensures the aggrieved party gets the justice they deserve while keeping the overall integrity of the contractual relationship intact.
#5 Include dispute resolution mechanisms for seamless conflict resolution
As a legal professional, you may often find yourself in a heated dispute with the other party involved in the contract.
In such cases, tensions rise, emotions flare, and suddenly you're stuck in a legal quagmire.
Without including dispute resolution mechanisms in your contract, you're left vulnerable and ill-prepared to navigate the treacherous waters of conflict resolution.
By including dispute resolution mechanisms, such as mediation, arbitration, or others, you're essentially equipping yourself with a well-stocked toolbox of conflict resolution techniques.
Here's why it matters:
- Maintaining control: Instead of leaving the fate of your dispute in the hands of a court, you have the opportunity to shape the outcome through a more collaborative and customized approach.
- Time and cost efficiency: Engaging in lengthy and costly court battles can drain your energy, resources, and bank account. Dispute resolution mechanisms, on the other hand, offer a more streamlined and cost-effective process.
- Preserving relationships: Disputes can strain relationships and tarnish reputations. Dispute resolution mechanisms help you demonstrate a commitment to finding an amicable resolution, which can help preserve the underlying business relationship. It's like finding a middle ground where both parties can shake hands and move forward.
- Confidentiality: Some dispute resolution mechanisms, such as mediation, provide a confidential and private setting for resolving conflicts, helping you protect sensitive business information and preventing the public exposure of potentially damaging details.
Also read: How to Resolve Contract Disputes
#6 Consider governing law and jurisdiction for legal certainty
When it comes to drafting contracts, there's a key ingredient that should never be overlooked: the choice of governing law and jurisdiction.
These pillars of contractual stability wield significant influence over how your contract will be interpreted and enforced. They provide the essential framework for resolving disputes and ensuring that your contractual masterpiece stands strong.
Here’s why it’s important to consider governing laws:
- Legal certainty: You can establish a clear framework for resolving any disputes that may arise. This clarity provides legal certainty and helps both parties understand the legal principles that will guide the interpretation and enforcement of the contract.
- Predictability: Different countries or regions have their own unique legal systems and interpretations. By selecting a governing law and jurisdiction that aligns with the parties' intentions and expectations, you can better predict how the contract will be interpreted and applied in case of a dispute.
- Enforceability: Some jurisdictions may be more favorable or experienced in handling certain types of disputes or industries. By carefully considering and selecting a jurisdiction known for its expertise and efficiency, you increase the likelihood of successfully enforcing your contractual rights if a dispute arises.
- Cultural considerations: If parties from different countries are involved, selecting a neutral jurisdiction or a jurisdiction that reflects the cultural backgrounds and expectations of both parties can help facilitate understanding and cooperation.
“Also, take inputs from legal heads of various jurisdictions. The more you talk to them, the better you understand changing laws and regulations.”
Bhavna Singh, GC & DPO, Subex Limited
Elevating Legal: Fostering Transparency and Accountability in Large Tech Enterprises
This very crucial step of considering governing law and jurisdiction provisions in your contract will allow you to unlock the power of legal certainty, predictability, and enforceability.
You ensure that your contractual masterpiece operates in a legal realm where rules are clear, disputes are handled efficiently, and both parties can rest easy knowing their rights are protected.
Also read: What is Contract Compliance? The Ultimate Guide
#7 Include provisions to protect confidentiality and non-disclosure
In the realm of contract drafting, there's an essential shield that stands tall, protecting the invaluable treasures of confidential information and trade secrets. Confidentiality and non-disclosure provisions ensure that the inner workings of your business remain shielded from prying eyes.
If you do neglect this step, it could lead to horrific circumstances:
- Breach of trust: Failure to safeguard sensitive information can lead to breaches of trust, strained relationships, and damage to your reputation. The absence of clear obligations and restrictions on disclosure may leave your confidential assets vulnerable and undermine the very essence of confidentiality.
- Loss of competitive edge: Competitors or third parties may gain access to your proprietary information, eroding your competitive advantage and potentially jeopardizing your market position.
- Legal battles and damages: Lack of clarity regarding the scope and duration of obligations may lead to disagreements and litigation. Breaches of confidentiality may result in financial damage, loss of intellectual property rights, and irreparable harm to your business.
- Erosion of innovation and collaboration: When parties are not adequately protected by confidentiality provisions, the willingness to share innovative ideas and collaborate diminishes. Without the assurance that their confidential information will be safeguarded, stakeholders may hesitate to engage in open dialogue, hindering innovation and restricting the potential for mutually beneficial partnerships.
By including provisions to protect confidentiality and non-disclosure, you construct a fortress that guards your secrets, preserves trust, and strengthens your competitive position.
So, don't underestimate the power of these provisions—embrace their protective embrace and ensure the sanctity of your confidential treasures. With robust safeguards in place, you can confidently explore new horizons, foster collaboration, and thrive in an environment where confidentiality reigns supreme.
Also read: The Ultimate NDA Checklist: Draft, Review & Sign NDAs with Confidence
#8 Define the conditions for termination and remedies to ensure accountability
When embarking on the journey of contract drafting, it's crucial to anticipate the twists and turns that may lie ahead.
By proactively defining the conditions and procedures for contract termination, as well as considering the consequences and potential damages in case of termination or breach, you fortify your position, protect your interests, and establish a roadmap for accountability.
- Clarity and certainty: The inclusion of notice requirements ensures that both parties are aware of their obligations and responsibilities, providing a solid foundation for informed decision-making.
- Protecting rights and interests: You get to establish the circumstances under which termination can occur, such as non-performance, breach of contract, or other specified events. By outlining the consequences and potential damages associated with termination or breach, you create a framework that ensures accountability and provides recourse in case of non-compliance.
- Exit strategy and flexibility: Conditions for termination, such as providing notice or specifying the required steps, ensure a structured and orderly termination process, which can be particularly valuable in long-term or complex agreements; parties can plan for contingencies and manage their contractual relationship with greater confidence and flexibility.
- Mitigating risks and uncertainties: By considering the potential damages that may arise from termination, such as financial losses, reputational harm, or other adverse consequences, you can assess the potential risks associated with non-compliance.
This step in the checklist empowers you to navigate the complexities of contract termination with confidence, fostering a climate of transparency and fairness.
#9 Include standard boilerplate clauses to mitigate legal pitfalls
It's imperative to pay due attention to the often-overlooked heroes of the legal realm: the standard boilerplate clauses. These seemingly innocuous provisions, such as force majeure, assignment, entire agreement, and amendment clauses, act as the bedrock upon which the contractual relationship stands.
By including these clauses and customizing them to align with the specific needs and circumstances of the contract, you fortify your legal foundation, reduce uncertainties, and shield yourself from potential legal pitfalls.
The absence of standard boilerplate clauses can create significant uncertainty and ambiguity in the contractual relationship. Parties may be left to navigate legal gray areas, resulting in disagreements, disputes, and costly litigation.
“If you ignore or skip lightly through the boilerplate, you are begging for problems or surprises down the road.”
Sterling Miller, CEO of Hilgers Graben PLLC
TEN THINGS: I KNOW IT’S ONLY BOILERPLATE (BUT I LIKE IT)!
Moreover, without these clauses, fundamental legal principles and common scenarios are also left open to interpretation, increasing the risk of misaligned expectations and conflicting understandings.
Another situation could be that your legal remedies could be limited in certain situations.
For example, without a force majeure clause, you may struggle to invoke an exemption from performance due to unforeseen events beyond your control. The absence of an assignment clause may restrict your ability to transfer your rights or delegate your obligations, limiting your flexibility in managing the contract.
#10 Set up a robust review and approval process to safeguard accuracy
A robust review and approval process in contract drafting is paramount. It ensures accuracy, legal compliance, and alignment with business objectives.
By engaging relevant stakeholders, legal counsel, and decision-makers, potential errors, omissions, and inconsistencies can be identified and resolved.
Implementing a structured review and approval process safeguards the integrity of the contract and fosters confidence among all parties involved.
With a review and approval process in place, there is enhanced accuracy, legal compliance, risk mitigation, and consensus building. On the flip side, neglecting it could lead to errors, non-compliance, misaligned expectations, and inefficiencies.
Also read: How to Set Up an Efficient Contract Approval Process (+Template & Examples)
A foolproof & free contract drafting checklist template
You know how to create your own checklist for contract drafting. However, if you want a good starting point, this foolproof and free contract drafting checklist template will assist you in covering all the crucial aspects of contract creation, ensuring accuracy, compliance, and protection of your interests.
Contract Drafting Checklist Template
Two ways to draft contracts
Automate and elevate: Contract drafting made easy with SpotDraft
Contracts need utmost care and heavy attention to detail.
By automating the contract drafting process with SpotDraft, you will save time, effort, and resources, and even reduce risk in your contracts.
With SpotDraft, the process would look like this:
- Choose from the pre-existing templates depending upon which type of contract you want to draft
- Get the required approvals from your team on SpotDraft itself. Since the template is pre-approved, this shouldn’t take long
- Send it across to the other party. They may edit or accept the terms directly on SpotDraft. All edits can be tracked and reviewed easily with SpotDraft’s MS Word integration
- For contracts that aren’t executed, automatic follow-up emails will be sent
Ready to dominate contract drafting?
By meticulously following our contract drafting checklist, you can ensure that crucial elements are addressed, reducing the likelihood of errors, disputes, and unexpected consequences.
Each section of the checklist plays a vital role in creating well-drafted and effective contracts that protect the interests of all parties involved and foster successful business relationships.
Plus, with SpotDraft, drafting contracts will be a cakewalk! Not sure how? Request a demo!