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It will become necessary over time, if only to avoid mounting legal fees, for the contractor to understand the construction and purpose of the clauses in a contract for services. Firstly, a warning to the wise, as in every walk of life contract drafters range from the extraordinary to the utterly incompetent. Not only do the competencies range but, the use of language ranges also. Some drafters are still stuck in the middle ages preferring to use olde English and Latin maxims. There is little reason for this other than familiarity and habit and having a vested interest in preserving the mystique. Caution would be advised where a lawyer produces a contract which is littered with legal jargon and gobbledegook. Caution would also be advised where the contract language is over-simplified and lengthy to the extreme. It can be said in both cases that the lawyer or accountant, who appear of late to have taken to the quill, lacks understanding. An essential attribute which you must ensure your lawyer has, other than a legal understanding of course, is an understanding of the commercial aspects of the contract. A well drafted contract can be rendered effectively useless if it fails to cover specific situations which are peculiar to your industry. The Structure The structure of a contract can vary but one particularly useful structure is to split the contract into: The Agreement;
The Terms and Conditions; and
The Schedule(s).
The three parts together constitute the 'contract'. One reason for this, other than clarity, is to deliver a contract which is easy to change. Where it is only necessary to change the details of the parties and the relevant terms as to pay and services, it is much simpler to have all the essential clauses on the front page. The parties would also sign on the front page, saves leafing through the whole contract but, a 'notice' must be included that 'the parties have read and understood the terms and conditions overleaf'. Overleaf are the 'terms and conditions' or t&c's as they are called in the profession. These 'terms and conditions' are what's called the 'operative provisions'. They can be placed in any order but, it is conventional to start with the definitions clause followed by the general terms, the main commercial provisions, the secondary provisions and ending with the legal 'boilerplate' clauses. It is recommended that headings are used and that clauses are grouped into subject matter rather than a long list of obligations on each party. It is also recommended that a numbering system is set up for the clauses and continuity is maintained. The main use of effective numbering is so the specific clause or sub-clause can be identified especially during negotiation. Referencing a particular point in the contract by having to say "Point B, second paragraph down in the middle…" is considerably harder, less specific and more open to misapprehension than "Clause 2.2.4". Every separate issue that is referred to should be numbered and not mixed with letters or irritating roman numerals. Operative Provisions Definitions The definitions are used mainly for interpretation or to avoid ambiguity but they are also used to prevent the necessity for repetition of long sentences or lists of words. A sentence can be defined in one word, and if a capital letter is used for the word it is an indication that when found in the body of the contract, it has a definition in clause 1. General Terms Although not convention, in some contracts general terms are put at the beginning, in clause 2 for example. The general terms will consist of the 'entire agreement' clause, changes, alterations and variations clause, the 'notice' clause and a clause stating that the headings and definitions are for information only. The notice clause here states where the 'notice' is required to be sent and by which method e.g., fax, registered letter, etc. For the avoidance of doubt, this clause must not be confused with the 'Notice Period' that gives you 30 days before the end of the contract. Main Commercial Provisions These provisions deal with the main commercial issues such as the rights and obligations of the Supplier and, in a separate clause, the rights and obligations of the agency. Following these clauses would be a clause for the payment terms. These are the main issues. Secondary Commercial Provisions Any other commercial provisions for example, warranties, confidentiality, intellectual property, indemnity and termination clauses follow on from the main provisions. Boilerplate Clauses These provisions are the miscellaneous standard clauses which appear in almost all contracts. These clauses might include severability, waiver, force majeure and jurisdiction. To explain these clauses briefly: Severability - this clause may state that the court
can sever or take out a term or condition of the contract which is invalid,
void or unenforceable without it affecting the effectiveness of the
remaining provisions.
Waiver - this clause would state that the failure to
exercise or enforce a 'right' at a certain time would not bar the party
from exercising their right at a later date.
Force Majeure - deals with the prevention or delay
of performance of the obligations under the contract. This clause can
only be used where there is a 'major force' affecting the performance
of the contract typically, an Act of God, war, riots, strikes, floods,
storms, etc.
Law and Jurisdiction - deals with the law which governs
the agreement and whether that law governs exclusively or not. For example
you would want the law of your country, English law, to be the law used
to decide any conflicts in the contract. In fact, even in international
commercial contracts where neither country is English, they often use
English Law. The jurisdiction can either be exclusive to the English
courts or non-exclusive.
Schedules If there are schedules which are to be attached to the contract, which in a contract for services there usually are, the existence of the schedule should be written into the main body of the contract. This prevents either party from denying it's existence at a later date. |
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