How to Write a Contract (that Doesn’t End in Breach)

Contracts are among the most-used documents in any business. They govern almost all dealings with external partners including vendors, suppliers, and customers, setting out plainly who is responsible for delivering what. For that reason, they are universally trusted, but the flip side is that they carry enormous risk. If your business is found to have breached a contract, the penalties can be huge – in some cases, larger than the contract cost. Here’s how to write a contract in a way that reduces your risk of a breach.

9% of a company's revenueis the cost of poor contract management

What is a Breach of Contract?

Contracts govern an agreement among two or more parties that a certain set of obligations will be fulfilled. In the business world, it usually means the fulfillment of a product or service. When one party does not hold up its end of the bargain, there is a contract breach.

A contract can be breached wholly or in part, and there are three types: material, partial or anticipatory. Here are each defined by The Balance Small Business:

  • A material breach is one that is significant enough to excuse the aggrieved or injured party from fulfilling their part of the contract.
  • A partial breach is not as significant and does not normally excuse the aggrieved party from performing their duties.
  • An anticipatory breach is one where the plaintiff suspects that the offending party might breach a contract by doing or failing to do something that shows their intention not to complete their duties. Anticipatory breaches can be very difficult to prove in court. 

Generally, the breach will result in legal action which could include not just the cost of the breached contract but damages as well. There are multiple defenses, including duress, mistake, and undue influence, but of course, it’s better to avoid breaches in the first place by having good contract management practices in place.

What is Good Contract Management?

How to write a contract that protects your assets

The set of practices that comprise good contracting practices is called Contract Lifecycle Management. The typical process includes a contract request, reviewing and contract redlining, approval, contract execution, storage, audit and reporting, and renewal and disposition. Generally, they are pictured in a circle, assuming that happy customers and vendors will renew and start the cycle all over again. Each stage in this process is a risk for contract breach, which means every stage is an opportunity to protect your company from getting it wrong.

This is how to write a contract in a way that protects your assets:

  1. Have a central contract repository with relevant communications attached. When you have contracts in disparate folders and random staff emails, it’s very easy to miss an edit or a key detail, accidentally send an old version, or lose important information that could lead to a contract that is incorrect or out of date.
  2. Standardize your workflows. Without a standard way of working, your busy teams can easily gloss over an important note from the legal team or forget to check a regulation that may have changed since the last time they negotiated a contract in that industry. A standardized workflow also saves time and double-handling, which is often the cause of mistakes.
  3. Store your contract clauses and other information in a searchable library. Leading organizations have a clause library with role permissions set up so only the legal team can approve new or edit clauses, dramatically reducing the risk that a bad clause will wind up in a contract.
  4. Embrace automation to cut down on manual handling. Machines completing tasks based on business rules are more consistent and less expensive than humans manually doing the same thing. Automation helps you streamline operations and free up your staff for smarter tasks, like more sales!

How Can Contract Management Software Help?

Contract management software like Anapact helps support good contract practices by managing the central repository and clause library, enabling automation, and enforcing established workflows. With poor contract management costing the average company up to 9% of their revenue, you can’t afford to leave your contracts to chance. Invest in a tool that supports your team to get it right the first time, and be confident that your contracts (and business relationships) will be renewed, not end in a breach.

Anapact is a complete contract management solution built for small & medium sized businesses. Get a demo today.