Contract Law & Contract Management

8 tips to writing contracts people can actually use

10 Jun 2015, by Informa Australia


Contracts are notoriously difficult for anyone other than the person who drafted them to understand, thus incredibly difficult to be able to apply in practice. This month we give 8 tips on writing for practice, not just court.

1. Have a useful Table of Contents

This seems silly, but some legal firms have started putting the table of contents (TOC) in the back of a contract. After all, the contract typically states headings are for convenience only and do not form part of the contract. Since legally irrelevant, why not throw it in the back? But who would think to look there!

The contract is a reference document for the managers of the deal. Management will need to find information quickly. Make the TOC the prime navigation tool and ensure you are using the automated TOC functions in your word processing software and make sure the headings are meaningful.

2. Number every paragraph for ease of reference

Imagine discussing the contract over the phone to the other party. Now imagine that you need to refer to the 4th paragraph on page 34, 2nd sentence, 2nd round bullet point, 3rd dash and compare it to the 6th paragraph on page 23, 3rd sentence. Such inability to quickly and accurately refer to items in the contract is frustrating to all concerned.

Every paragraph must be numbered, every time. No bullets. No exceptions.

A typical numbering system has numeric, alpha, and then roman as shown below. The reference to the conversation then becomes, “refer to paragraph 4.2.2.c and compare to 2.6”.
# Heading 1
#.# Heading 2
#.#.# Heading 3
            a. Heading 4
                i. Heading 5

And use your word processing software’s style sheet. If you don’t know what that is, take a course. Your software is your key tool and you need to know how to use it.

3. Help the reader scan quickly by using the “(topic)” technique

No one that manages contracts on a regular basis has time to read each and every paragraph to know what they all contain. A contract is not a Grisham novel that will be read cover-to-cover. Managers are also extremely short on time and need to be able to scan the document quickly to find what they are looking for. Merely bolding a title before beginning the paragraph is extremely useful for skimming the page. An example is below:

2.2.2 (Non-exclusive) The Client is under no obligation to request additional work and may use any third party it chooses or perform additional work itself.

4. Use enforceable words

There is a long list of ambiguous words to avoid, yet one always finds such phrases scattered throughout contracts. Below are will kick off your banned words list.

First, avoid anything that doesn’t actually mean anything such as “world’s best practice” and “industry standard” unless you can specify what practice/standard or how the parties will determine it.

Get rid of words such as “first opportunity”, “when possible”, “reasonable endeavours”, “attempt” and the like serve to reduce an obligation to a task of convenience. If you really want something done, use words that make the activity compulsory such as “must”.

Remove words that each party will have a different interpretation of such as “reasonable”, “timely”, “adequate”, “sufficient”, and so on. You define what you want and you will get it (When do you want it? What is adequate?) Leave it hazy and lazy and you won’t.

5. Have only one thought per paragraph

‘Stream of consciousness’ style of writing that run on and on with a variety of subjects discussed are impossible to quickly understand for even more difficult to manage. Each paragraph should address one issue and that issue only, not try to set the world’s record for the number of words per paragraph!

6. Use automated cross references

Today’s contracts are more commonly used in electronic form, not hardcopy. To make a large contract easy to navigate, use the automated cross-referencing facility found in MS Word and similar software. Then the user of the document need only press ‘control+click’ to be transferred to the cross-reference.

7. Don’t hold back on definitions

Any words or phrases that are not specifically defined in the contract, each party gets to make up whatever meaning they want. So, if the contract doesn’t define “business day”, it can be whatever each party wants it to be (which will of course be different for both parties). For this reason, contracts should have a fairly large set of reserved words, commonly found in a section called the “definitions”. The contract definitions are the single source of reference for reserved terminology. Both parties must then are required use that definition and do not get to make up what the word means.

Make sure definitions are the one-stop-shop for all reserved words; do not define a word in the body of the document, as no one will know where to find it. It is still common to see a word or phrase defined where it is used for the first time. However, if you encounter the word on page 154 and it was defined on page 21, how would you know to go to page 21? You would not, and would have to read the entire contract until you found the definition (or did a word search on the electronic version). Or just make it up.

Also, if your definitions have a lot of the “meaning as defined in clause 12.3.c” style, you have failed the ease of use test. Making people flip too many pages to get an answer immediately disqualifies your contract from being practical.

8. Test ambiguity

In practice, a document that requires a narrator (or some other form of an interpretive call centre) will fail! Have someone from another discipline other than the author’s read it to determine whether s/he might have different interpretations of the wording. Remember, whether the author knows what was meant by what was stated in the contract has no relevance; it is only how others interpret the words that is important. If interpretations vary between different readers, the contract has not achieved its primary goal – to achieve a consistent, shared understanding.

Find these tips useful? We have much more to offer in our training courses!
Find out more about Informa’s contracts, procurement and tendering courses here.

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