IMPORTANT SECTIONS OF CONTRACTUAL TERMS TO KNOW

When it comes to legally binding agreement, the devil is often in the details. This is why it is important for one to understand the contractual terms, given that it is these terms that actually spell out the nature of the agreement.

Do we need a fresh contract each time?

Since drawing contracts can be time consuming, most organizations do not go to the trouble of drawing up special contracts every time they procure or sell goods and services. For most routine transactions they rely on standard terms.

Each firm will draw up its own standard terms of business, and will seek to ensure that these terms are accepted by other firms with whom they deal. Such terms can commonly be published in the organizations purchase orders, order of acknowledge, invoice and receipts etc.

Standard terms will almost always not work in more complex or strategically critical, high risk non-routine business deals. In such cases the organization will invest time and effort in creating contracts for such.

Model form contracts are published by third party experts (such as trade associations and professional bodies).

Whether you are dealing with the standard or model form contracts, it pays to know the parts or sections of contractual terms.

What are the main sections of contractual terms to lookout for?

Many contracts (though not all) follow an established format which is summarized below

  • The ARTICLES

These comprise the very basic agreement: in short summary:

They state that Party A (e.g., the  purchaser)  is  entering  into  a  contract  with  Party  B  (e.g.,  the  supplier).  Party B agrees to provide the  goods or  services and Party  A  agrees  to pay for  them. 

They set out exactly who the parties are  by  reference  to  their  full  legal  entity  names, usually registered  company  names  and  registration  numbers  where  applicable, and  their registered office addresses.

In each case they will also give the term by which each party is known throughout the rest of the contract.

This will either be by a generic function (“the purchaser‟, “the client‟, “the supplier‟, “the service provider”, etc.,) or (less helpfully) by a shortened form of the company’s full  name  (e.g.,  “Zerite”  for  Zerite Network Ltd).

This clarifies the purpose of the contract and who the parties are, while at the same time making the drafting of the clauses slightly simpler, by not having to ensure that the party names are inserted repeatedly.

  • The RECITALS

These provide the context. They sell out the facts that surround the situation in which the contract happens.

In some agreements it is a very simple re-statement of the facts that the purchaser wants to acquire X and the supplier has agreed to provide it.

In some contacts  (particularly  building  contracts)  there  will  be  number  of  other  factual statements covering who will perform other roles necessary for the contact work. By convention they start with the word “whereas” (which means “given this….”) and are followed by “it is now hereby agreed” (or something similar).

If anything in the recitals is wrong, it could undermine the whole contract.

  • CONTRACT PARTICULARS 

Some forms of contract, particularly industry standards forms, will also have a CONTRACT PARTICULARS section.  This sets  out  some  of  the  specific  variables,  such  as  the  required date of completion and any specific insurance requirements. It is a mechanism for writing terms and conditions  without  having  to amend  clause  by  clause. It  works by  creating a schedule  of  common  variables  which  can  be  filled  in,  and  to  which  the  detailed  terms refer back. 

  • The full TERMS AND CONDITIONS

These cover the ifs, buts, maybes and what  will  happen  in  respect  of X  if  ABC  happens  to  Y.  Normally they will be in standard wording, with specific meanings set out in a DEFINITIONS AND INTERPRETATION clause for avoidance of doubt. They will cross-refer to the contract particulars and the schedules.

  • The SCHEDULES

These set out project specific detail either as designed by the purchaser (e.g., KIPs) or as submitted by the supplier (e.g., pricing).

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