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Practical
Guide to Understanding a Contract - Pt 1
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.
Part:
2 - Next
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