MASTERINING CONTRACTS

MANAGEMENT TRAINING
DATE: 22 – 26 MAY 2022
ONLINE
LEARNING OUTCOMES
 Contract law management
 Good Contracting and Procurement Practice
 Contract Types and Payments
 Contract Administration and Close Out
 Source Selection and Contract Development and
Contract Negotiation
 Refresh your knowledge of the law surrounding
breach, termination and liquidated damages,
enabling you to draft tighter provisions and
ensure greater protection for your stakeholders
 Share the knowledge and experience of peers
from different countries and sectors
 What is contract?
 A contract is a legally binding agreement between at least two parties.
 The basic principles of formation of contract govern formation all contracts,
whether you:
 buy or sell services
 sell a product
 sell a business
 buy intellectual property
 sell products to consumers
 give a guarantee.
 They're everywhere.
 And it's all controlled by contract law.
 Some contracts must be in writing to be enforceable. Most don't.
 Many businesses make the mistake that if there is no written contract,
there cannot be a contract. The rules apply to oral contracts as well, and
those formed by conduct of the parties.
 The rules apply across the board.
Principles of Contract law in
Business
Freedom of Contract
 One of the first principles of contract law is autonomy.
 Businesses are free to contract on terms and on any terms
they choose. They may allocate risks within their contracts
as they wish. It is up to the parties to decide what risks
they will accept and on what terms.
 Courts will respect their decisions and enforce the deals
that they sign up to.
 Of course there are exceptions.
 But the principle of freedom of contract comes before all of
the exceptions.
 That's basically how the law works:
 you can agree to whatever you like,
 unless the law takes it away.
 Principles of Contract law in
Business
Fairness and Open dealing
 But there are exceptions to these policies. The exceptions are limited.
 The exceptions revolve around unfair conduct.
 When a party does not deliver on their promises, it's a breach of contract.
 When a party acts without notice to their counterpart, legal consequences
follow.
 Notice in this context means telling the counterpart before:
 imposing harsh or oppressive terms in a contract.
 The more unreasonable or extortionate a contract term is, the more effort
needs to be taken to draw attention to it before the contract is finalised
 steps are taken which could affect a party's legal rights - where they have
no legal entitlement to do so.
 Not giving notice can backfire - and badly
 Requiring a contract to use clear words to deprive a party of their usual
fundamental legal rights
 When there is an imbalance between the bargaining power of negotiating
parties and one takes advantage of the other.
Ten Tips for Making Solid Business
Agreements and Contracts
1. Get it in writing.
2. Keep it simple
3. Deal with the right person
4. Identify each party correctly
5. Spell out all of the details
6. Specify payment obligations
7. Agree on circumstances that terminate the
contract
8. Agree on a way to resolve disputes
9. Pick a state law to govern the contract
10. Keep it confidential
What isn’t a Contract?

Invitations to Treat: price quotations, over

the counter sales, …
Heads of Terms and Letters of Intent
Agreements in principle: agreements in
principle, declaration of intention, proposals
Contracts to enter a contract / Agreements
to agree
Contracts to Negotiate
Agreements lacking definite meaning
 Contract pricing
Contract price, defined as the price of a contract which is
paid to a contractor upon completion, is used any time a
contract exists.
Due to the fact that a contract is an agreement to complete
a certain type and amount of work, the contract price is
fully paid to a contractor when they have completed the job
which has been agreed upon.
Generally, contract price includes a down payment, may
include a few continuing payments, and ends with a final
amount paid to close the contract.
Contract price, explained simply as the price which two
parties agree on for a certain amount of work, is a very
common concept.
Common contracts are for construction, landscaping,
leasing, and even the common mobile phone.
 Contract Price Cost Analysis
 Contract price cost analysis is essential to preventing a bad deal.
 Different contracts serve different purposes.
 The common landscaping contract, for example, does not have
irregular expenses or a final completion date.
 The nature of this agreement lends itself to a payment schedule.
 Due to this, the contract price for landscaping is commonly paid
on a per month basis.
 In contrast, a construction job has irregular expenses and a final
completion date.
 In this case, the contract price will be paid differently.
 As stated above, they commonly have a down payment, regular
payments, and a final construction retainer.
 This payment will be paid when the job is almost complete and
the client only expects a few small changes.
Contract price analysis
 Price Analysis is the process of deciding if the asking
price for a product or service is fair and reasonable,
without examining the specific cost and profit
calculations the offeror used in arriving at the price.
 It is basically a process of comparing the price with
known indicators of reasonableness.
 Examples of other forms of price analysis information
include:
• analysis of previous prices paid
• comparison of vendor's price with the in-house
estimate
• comparison of quotations or published price lists from
multiple vendors
 Cost analysis
 Cost Analysis is the element -by-element examination of the
estimated or actual cost of contract performance to
determine the probable cost to the vendor.
 The goal is to form an opinion on whether the proposed costs
are in line with what reasonably economical and efficient
performance should cost.
 Cost or pricing data, which should be provided by the
subcontractor, are the means for conducting cost analysis.
 Such data provide factual information about the costs that the
subcontractor says may be incurred in performing the
contract.
 Cost analysis should be performed in those situations where
price analysis does not yield a fair and reasonable price and
where cost data are required in accordance with prime
contract clauses.
 Cost analysis
Cost analysis techniques are used to break down
a contractor's cost or pricing data so as to verify
and evaluate each component.
Some of the cost elements examined for
necessity and reasonableness are materials
costs, labor costs, equipment and overhead.
These costs can be compared with actual costs
previously incurred for similar work, the cost or
pricing data received from other offerors, and
independent cost estimate breakdowns.
Contract Price Escalation

Contract price escalation may occur partway

through the process of completing the work.
The reason for this could be increased
expenses, increased time to complete the
project, and more.
In this case both parties will need to
renegotiate the deal.
Contract price adjustment can be very
complicated when one party does not want to
change.
Still, it must occur despite the inherent difficulty
of changing a standing agreement.
Governing Law
Parties to a contract are free to choose
their governing law: it need not have any
connection with the location of the
contracting parties or the subject matter of
the contract.
In practice the parties' choice of law may
often be straightforward, based on market
practice or the law that they are familiar
with.
Governing Law
A "Governing Law" clause is a clause used in
legal agreements where you can declare
which rules and laws will govern the
agreement if legal issues arise.
A "Governing Law" clause will be found
consistently in contracts and legal
agreements between companies and their
users.
Why English law governs most
international commercial contracts?
English law is transparent and predictable,
providing freedom of contract, a pro-
business approach.
Under English law, in commercial contracts,
there's no implied overarching duty of good
faith, unlike in other jurisdictions.
A duty of good faith requires neither party
to take advantage of the other
Why English law governs most
international commercial contracts?
In fact, parties prefer English law to govern
their commercial transactions because of
the large body of judicial precedents and
the consistency and fairness of English
courts. ... English law is based primarily on
common law, which is developed by judges
sitting in courts, and creates binding
precedents for future cases.
HOW DOES GOVERNING LAW IMPACT
CONTRACT ENFORCEMENT?
 All aspects of a contract are anchored in one or more legal
systems.
 Parties are free to choose either one or multiple applicable legal
systems for their contract.
 They could also choose different laws for different aspects of the
contract.
 The governing law of the contract dictates legal requirements such
as formation, performance, and termination of the contract.
 Additionally, every legal system is likely to have certain provisions
that parties cannot eliminate in their contracts.
 If parties do not specify the governing law, the courts will decide it
for them.
 This can prove to be an expensive and wasteful exercise for the
litigants.
 Parties can easily avoid this problem by expressly stating the
governing law in the contract.
 HOW SHOULD YOU CHOOSE A
GOVERNING LAW?
TRANSACTION TYPE
 When choosing a governing law, first consider the type of transaction involved.
 For example, in employment contracts, employers are generally concerned
about enforcing restrictive agreements like non-compete and non-solicitation.
US state laws vary on how easily employers can enforce these restrictions.
 Similarly, some state laws have technicalities that complicate commercial
transactions. The chosen governing law should facilitate performing the
contract rather than impede it.
PARTY LOCATION
 Parties’ familiarity with governing law is important. This is influenced by the
location of each party, and the place where the contract will be performed.
 The relative bargaining power of the parties also plays a role. Generally, the
party with more bargaining power may choose the law of their place of
business as the governing law and jurisdiction for bringing any claims.
LOCATION OF CONTRACT CLAIMS
 Finally, parties should choose governing law from the same state where claims
under the contract will be brought. This ensures that the courts interpreting
and enforcing the contract terms are experienced in applying the parties’
chosen law.
 Governing Law Versus Jurisdiction
Jurisdiction refers to where a dispute will be resolved;
governing law indicates which state's law will be used to
decide the dispute. ... But the selection of the state for
jurisdiction can be more important: If there's a dispute, that's
where everyone will have to go to resolve it.
A governing law clause does this by setting out expressly the
parties' choice of the law that will apply. ... A jurisdiction
clause therefore states that the parties have agreed to the
courts of a named country taking jurisdiction over (in other
words, having the right to hear) any disputes that may arise.
If there is no jurisdiction clause, the courts which will be able
to settle any dispute arising from the contract will be
determined by the rules of private international law. ... The
basic rule is that a party must be sued in the court in its own
country, subject to various exceptions.
Types of Jurisdiction
 Governing Law vs Applicable Law

Applicable Law means all laws, rules and

regulations applicable to the Person,
Under “choice of laws” principals the conduct, transaction, covenant, Other
parties to a contract can agree upon Document or contract in question, including
which law will be used for the interpretation all applicable common law and equitable
of the contract in the event of a dispute. ... principles, all provisions of
I refer to that as the “governing law”. It is all applicable state, federal and foreign
the law that will govern the interpretation constitutions, statutes, rules, regulations
of the contract.
Why is a case citation useful in
law?
Case citation is a system used by legal
professionals to identify past court case
decisions, either in series of books called
reporters or law reports, or in a neutral
style that identifies a decision regardless of
where it is reported.
In your reference, you need to include
'Name of case' (year) title of law report,
volume number, page numbers.
KEY TAKEAWAY
The choice of governing law has far-
reaching effects on how contracts are
enforced.
All parties should consult an experienced
attorney to ensure they choose the best
governing law for their situation.
Where parties into a contract have no
governing law, the courts shall decide
 Contract risk management
“Contract risk involves potential
losses due to a buyer’s inability
to pay or the terms of the
agreement being broken.”
 Financial Risk

Financial risks, often categorized as credit, liquidity,

asset-backed, and equity risk, are contract risks
associated with the loss of money regardless of
whether it impacts your top or bottom line.
From a contract management perspective, it could be
caused by missing a key contract date — such as a
renewal — and either losing business or inadvertently
continuing the contract term due to an automatic
rollover clause.
Another example would be a contract termination or
compensation associated with missed delivery dates,
milestones, claims, or warranty problems.
Legal Risk

 Legal risks arise when you have a breach of contract

with the potential for legal accountability or litigation.
 There are several types of legal risks including
regulatory, compliance, and dispute risks.
 For contract management, your legal risk could occur
from missing contract obligations and compliance
requirements such as environmental regulations.
 It could also be a result of intellectual property (IP)
infringement charges, improper or lack of using the
right legal clauses, confidentiality disclosures, and
other contract disputes.
 Security Risk

Security risks can be attached to some of the

highest profile and most severe consequences for
your organization.
This is because security breaches with your
contracts often result in additional financial, legal,
and brand issues.
When managing your contracts, security risks exist
by storing contracts in insecure locations, allowing
everyone with contract access to have the same
level of access to sensitive contract data, leaving
confidential contract data unencrypted, and by
using email to communicate sensitive information.
Brand Risk

Brand risk is essentially your risk

associated with negative public and
customer opinion, poor employee morale,
and is part of the aftermath of financial,
legal, and security issues.
Mitigating brand risk is more important
than ever because bad news travels fast in
today’s hyper-connected digital world and
can quickly impact your brand reputation.
This, in turn, can impact your financial
performance and the cycle perpetuates.
 Key Take Aways
 In many cases, your contract risks are closely related to each
other and often have a domino effect. A brand risk may trigger a
financial risk, or a security risk may trigger a legal risk.
 A good example of this is with the Facebook and Cambridge
Analytica scandal where private information was stolen from
87 million Facebook users.
 This security and compliance violation resulted in a
$130 billion drop in Facebook’s market capitalization.
 In addition, it dealt a huge blow to the company’s brand with 40%
of its users saying they were going to take a break from the social
media application.
 The four most common types of contract risk are financial, legal,
security, and brand risk.
 Given the importance of contracts for your organization, it’s
critical to understand these different risk types in your contract
management processes and take the necessary steps to identify,
assess, and mitigate them.
Negotiation is a method by which people settle
differences. It is a process by which compromise or
agreement is reached while avoiding argument and
dispute. In any disagreement, individuals
understandably aim to achieve the best possible
outcome for their position (or perhaps an organisation
Contract negotiation
Pre-Contracts
 Pre-contract commercial negotiations are key to
achieving an effective contract. ...
 Although representations made prior to signing an
agreement usually do not form part of the contract
itself, they can be powerful enough to determine
whether a party enters into the contract.
 They are usually intended as a non-binding record
of the terms that may have been agreed in
principle prior to finalising the contract. ...
 A carefully drafted Pre-Contract Document can
achieve this as well as satisfying the need to clarify
the position of the parties before a final contract is
signed.
 Negotiation Roles
Leader
The leader has two main roles, first to coordinate the
actions of the team and second to provide the main
'face' of the negotiating team. In fact the leader may at
times have separate conversations with the leader of
the other team, in particular when things are getting
stuck. Much can be completed in one-to-one
discussions that may get bogged down when multiple
people are each adding their thoughts.
The leader may be a senior person who has the
authority to make decisions. There can be a risk in this,
however, when the person is not experienced in team
negotiation and may make elementary mistakes that
could cost their organization a great deal.
 Negotiation Roles
Critic
 The critic is the 'bad cop' of the team, always looking for
flaws and problems. They may have an internal focus,
criticizing their own team's activities (in private, of course)
and may focus more in the room, criticizing points made
by the opposing team. The internal role is helpful for
avoiding problems like complacency and antagonism
where the team moves away from an effective way of
working together or with the opposing team.
 Being a verbal critic in the negotiating room can be useful
for giving a focus for the opposing team's frustration,
which the leader or relater may later offer to quell (in
exchange for agreement, of course). It also frees up the
leader and relater to build relationships without having to
cope with criticism. The leader may also let the critic bring
up a subject and then say something like 'Well, she does
have a point there' before taking it up as major topic.
 Negotiation Roles
Relater
 The relater is the friendly face of the team.
They build relationships with individuals in the
opposing team and may through this gain
useful pieces of information. They also act to
intervene when there is conflict between
personalities and can act as mediator or other
supporting roles.
 The relater may well avoid the harder
substance of the negotiation, focusing more
on relationships. However, they may at times
need to use the relationship bridge to talk
about aspects of the deal.
 Negotiation Roles
Expert
 Experts may be rolled in and out of the
negotiation to provide particular evidence or
assessments in key areas, for example
technology or law.
 Typically they do not do any direct
negotiating, but give information and answer
questions.
 When they are not there permanently, they
may need to be briefed before they enter the
negotiating room so their comments can be
adjusted to align with the position of their
home team.
 Negotiation Roles
Recorder
 The recorder (often called a scribe, secretary,
etc.) takes notes about what is said.
 In particular they note what people are
requesting and what offers are made.
 While they may occasionally ask questions to
ensure they take accurate notes, they are
mostly silent.
 This can let them act as another observer and
they may make side notes that they can bring
up with the leader or team later.
 Negotiation Roles
Builder
 The builder is the person who creates the
deals, putting together packages of things to
exchange for other packages in return. 4
 They may also have a financial role where
they assess the cost and value of items being
exchanged.
 Often in negotiations, people over-value what
they offer and under-value what they might
receive.
 The builder seeks the truth of such positions
and provides the leader with facts to enable a
sound decision.
 Negotiation Roles
Observer
 The observer has a watching brief, in
particular paying attention to the subtleties of
words and non-verbal body language.
 They may pass notes to the leader about their
observations and discuss what they see in
breaks between meetings.
 Hence, for example, they watch for signs of
lying and other tensions.
 While this is not an exact science, people do
send many unconscious signals that other
members of the team may miss as they focus
more on the substance of the negotiations.
Phases of Negotiation
5 Highly Effective Negotiation
Tactics Anyone Can Use
Listen more than you talk.
Use timing to your advantage.
Always find the right way to frame the
negotiation
Always get when you give
Always be willing to walk
General terms and structure of a contract
There is no specific format that a contract must
follow.
Generally it will include some terms, either
expressed or implied, that will form the basis of
the agreement.
These terms may outline contract conditions or
contract warranties.
Contract conditions are fundamental to the
agreement
When negotiating the contract terms make sure
the conditions of the contract are clearly
defined and agreed to by all parties.
General terms and structure of a contract
Contracts may follow a structure that can include, but are not limited to, the
following items:

 details of the parties to the contract, including any sub-contracting

arrangements
 duration or period of the contract
 definitions of key terms used within the contract
 a description of the goods and/or services that your business will receive or
provide, including key deliverables
 payment details and dates, including whether interest will be applied to late
payments
 key dates and milestones
 required insurance and indemnity provisions
 guarantee provisions, including director’s guarantees
 damages or penalty provisions
 renegotiation or renewal options
 complaints and dispute resolution process
 termination conditions
 special conditions
General terms and structure of a
contract

Before you sign a contract:

 read every word, including the fine print

 ensure that it reflects the terms and conditions that were
negotiated
 seek legal advice
 allow plenty of time to consider and understand the
contract
 don’t be pressured into signing anything if you are unsure
 never leave blank spaces on a signed contract – cross
them out if you have nothing to add so they cannot be
altered later
 make sure that you and the other party initial any changes
to the contract
 obtain a copy of the signed contract for your records.
 Contract performance monitoring
and control
 Once the contract has been awarded, the responsible
procurement officer, or the requisitioner, monitors performance,
collects information, and measures actual contract
achievement. This is essential for effective control.
 The resources devoted to these tasks, and the techniques used
to perform them, will depend on the nature of the contract
work, the size and complexity of the contract, and the resources
available.
 Observations are made in order to collect information related to
those aspects of performance that, when measured, will
describe the progress of the work.
 The reason for observing, collecting information, and measuring
progress is to have a basis for comparing actual achievement
with planned achievement in order to exert control.
 Each party must direct its attention internally to ensure that it is
fulfilling its own obligations, and externally to ensure that the
other party is fulfilling its obligations.
 Contract performance monitoring
and control
Each party must direct its attention internally to
ensure that it is fulfilling its own obligations, and
externally to ensure that the other party is fulfilling
its obligations.
Observing and collecting information should be
directed at four general control points. These
include:
cost control
schedule control
compliance with specifications, terms of reference,
statement of work (quality assurance and control)
compliance with terms and conditions, paperwork
requirements, and administrative aspects of the
performance.
Contract Monitoring and Review Process
 Class Activity: 25 Minutes
a. Are you a good contract management practitioner? Justify
yourself.

With reference to projects or contracts you are working on explain

the application of the following contract performance
management tools.

1. Contractor Progress Reports

2. Contractor Quality Assurance Plan (QAP)
3. Quality Assurance Surveillance Plan (QASP)
4. Earned Value Management (EVM)
5. Performance Assessment
6. Product or Service Inspection & Acceptance

Which tool/s are commonly used in your organisation?

 Useful Contract Drafting Tips
1. Avoid Ambiguity
You should seek to keep away from ambiguous
language in your contracts at all costs.
Not only does ambiguity foster confusion and
misinterpretation, it also exposes you to legal risk.
Even a misplaced comma or adverb may completely
transform the meaning of a sentence and create
unexpected consequences.
If possible, have a lawyer look through the final
document in search of phrases that may have a double
legal meaning. Using the term "agent" within a
contract, for example, can imply that this person has
certain obligations that you didn't intend.
 Useful Contract Drafting Tips
2. Be Concise
The longer a contract is, the more likely that it will
contain problems such as mistakes and ambiguous
language. You should strive to keep contracts as short
as possible, but no shorter.
Each sentence of the contract should have a clear
purpose and serve to reduce complexity.
As much as possible, avoid the use of technical
jargon; write in plain English wherever possible.
When appropriate, simplify phrases into single words
(such as "propose" instead of "make a proposal").
Use the active voice instead of the passive voice,
which tends to make sentences longer.
 Useful Contract Drafting Tips
3. Create an Outline
Together with your contract partner, you should draft
an outline of the document as both parties
understand it.
This will increase the contract's clarity, reduce
misunderstandings and improve its logical structure.
Not only will the outline assist in writing the
document, it will also help you hash out issues that
you have overlooked or haven't discussed during the
negotiations.
This might include sections such as penalties in the
event that the contract is breached or terminated
early.
 Useful Contract Drafting Tips
4. Define the Important Terms
At the very beginning of the document, most contracts
include definitions of the essential people and entities.
You're probably familiar with boilerplate language,
such as "hereafter referred to as."
All definitions must be explicit enough that a third
party would be able to recognize and understand
exactly what they mean, even without any firsthand
experience with the contract.
For example, the term EOD (end of day) is usually
interpreted to mean 5 p.m. local time — but not
always, so make sure you include a definition of how
you interpret EOD and which time zone you'll be using.
 Useful Contract Drafting Tips
5. Think About Lawsuits
Although no one wants to imagine that the terms of a deal
will go sour, it does unfortunately happen.
Indeed, the purpose of a contract isn't just to understand
both parties' roles and responsibilities, but also for both
parties to protect themselves as much as possible in the
event of a lawsuit.
The potential of a lawsuit should be in the back of your mind
when drafting a contract. It's a good idea to bake alternatives
to litigation, such as mediation and arbitration, into the
contract itself.
Make sure that the terms of the contract aren't in conflict with
the laws of the locations where the contract will take effect.
As mentioned above, the contract's language should be
watertight so that your organization can avoid expensive and
time-consuming litigation.
Class activity (10 Minutes)

Under what circumstances

the adverbs “
Shall/Will/Must” be used in
contract drafting?
 Shall/will/MUST in contracts
 The distinction between several types of contract provisions
suggests that ‘consistent drafting’ means that shall should
always be used for party obligations and that contract policy
rules should be signalled by will (implying that both shall and will
may properly co-exist in one contract).
 Others would dispose with such distinction if the use of will
psychologically smoothes the sharp edges from the obligatory
shall helping the other party to assume such obligation.
 Traditionally, conventions dictate that: 'Will' when used in the
first person, conveys an obligation, whereas 'shall' merely a
future intention.
 Conversely, when used in the second or third person, 'will'
conveys a future obligation, whilst 'shall' imports compulsion and
obligation.
 In fact, “must” is the only word that imposes a legal obligation
that something is mandatory.
 Shall/will/MUST in contracts
To express Use As In
Obligation (an must, will do it You must do it
order)
Authorization may You may do it
(option)
Prohibition (a Must not/may not You must not do
ban) it
Preference (a Should You should not do
Recommendation it
)
Intention Will We will do it
(promise
Imposing
Don’t no The word “shall” has several meanings that are easily
use “shall”
requirement)
confused, even by lawyers. Use “must” if you want to show obligation, and
follow the rules set out above
How do you draft a contract
amendment?
Write, “Agreement to Amend Contract” at
the top of the pertinent page.
Enter the names and titles of parties
involved.
Clearly state in a sentence or two that both
parties are agreeing to amend this contract
on such-and-such date and such-and-such
time.
Then clearly describe the changes in
writing.
 5 Steps to an Amended Contract
1. Review the contract and see what it says about
amendments. Do what it says.
2. Discuss your proposed amendment with the other party or
parties involved. Do you agree on what needs to be
amended? You better!
3. Write, “Agreement to Amend Contract” at the top of the
pertinent page. Enter the names and titles of parties
involved. Clearly state in a sentence or two that both
parties are agreeing to amend this contract on such-and-
such date and such-and-such time. Then clearly describe
the changes in writing. Make sure to note the name or
number of the section that is being revised.
4. Below the revision, write, “All terms and conditions of the
contract not specifically amended herein shall remain in full
force and effect.”
5. Have all parties sign and date the changes.
 The Difference Between an
Amendment and an Addendum
The terms “addendums” and “amendments” are
commonly used in contract law, and the similarity
of the two terms can confuse business owners.
Basically, “amendment” means any alteration or
revision of a an existing document.
An addendum, on the other hand, does not
change the contract, it adds to it. An addendum is
usually added to an exiting contract only when
something of crucial importance has been
accidentally omitted from the original document.
As always, when in doubt, ask a lawyer for
assistance. When it comes to contracts, it’s
always better to err on the side of caution.
 1. Under what
Class activity 15 MINS circumstances a
contract can be
terminated?
2. Can you
terminate a
contract that
has no
termination
clause? If so,
how is the
contract
terminated?
Termination clause of a
commercial contract
A termination clause defines under what conditions a
swap agreement can be terminated, as well as defines
provisions for damages as a result of the
termination. ... A termination clause may also be
included in an employment contract, and defines the
employee's rights to notice and pay in regards to the
termination
Parties may make a provision for termination for
convenience for any reason.
Private commercial transactions can be terminated by
the parties even without assigning any reason, with a
reasonable period of notice in terms of a clause in the
agreement authorizing such termination.
 Methods of Contract
Termination
1. Termination upon expiry of the term or
completion of the contract
This is the most commonly used method of contract
termination.
The contract is terminated upon expiry of the term set
out in the contract or upon fulfillment of the purpose for
which the Contract was entered into.
For example, should a contract state that the term of
the contract is 3 years, then the contract shall
terminate upon expiry of such time period.
It is necessary to state the starting date of the contract.
If no such date is mentioned, then the contract is
deemed to have commenced from the date it was
executed.
 Methods of Contract
Termination
2. Termination for convenience or
termination without assigning any reasons
Also known as “termination without cause”, the
parties agree to terminate the contract without
assigning any reason but lay down a process of
termination by giving a notice to the other Party.
This clause is generally worded as follows;
“………Either party hereto may terminate this
Agreement without cause at any time, upon at
least thirty (30) days written notice, ……..” .
 Methods of Contract
Termination
3.Termination upon breach of the terms of
the contract
This clause may also be worded in the contract
as “Termination with cause”.
The parties generally incorporate this clause in
the contract to protect themselves against any
breach of the contract terms by the other Party.
For instance should a contractual party not
perform its contractual obligation, the non-
defaulting party the non-defaulting party may
terminate the contract by giving a notice to the
other party.
 Methods of Contract
Termination
 Termination clauses in their nature can provide an
option to the defaulting party to cure the breach that
has been committed within a specified time in an
mutual and amicable manner or the non-defaulting
party may adopt the legal route and either seek specific
performance of the contract or may ask for
compensation to make good the loss suffered.
 All above methods of contract termination are apt for
any commercial agreement, but the manner in which
parties finally terminate the contract may vary
depending on how the termination clause has been
drafted.
 All of the above stated methods of contract termination
have garnered legal recognition over the years.
Validity of the Termination for
Convenience Clause
 Termination for convenience means
termination by giving a prior notice to the
other party without assigning any reasons.
 Parties may make a provision for
termination for convenience for any reason.
 Private commercial transactions can be
terminated by the parties even without
assigning any reason, with a reasonable
period of notice in terms of a clause in the
agreement authorizing such termination.
 Termination rights not found in the
contract
 Most contracts include a termination clause, but if there isn't one
and you need to terminate a contract, referring to any of the
aforementioned legal doctrines can help you end the agreement
early.
 In summary, any party is entitled to terminate a contract, even if
their contract does not have a termination clause. But reasonable
notice must be given, and if there is a dispute, the reasonableness of
that notice will be the subject of court review.
 Some contracts also terminate automatically after a certain period or
if certain events or actions are completed.
 In summary, any party is entitled to terminate a contract, even if
their contract does not have a termination clause.
 But reasonable notice must be given, and if there is a dispute, the
reasonableness of that notice will be the subject of court review.
 Various clauses in a contract serve to protect your business from
miscommunication and lawsuits, providing legal safeguards that
your business may not otherwise receive.
How do you terminate a contract
without a termination clause?
1. Discharge by performance. The contract
comes to an end when both parties
perform their contractual obligations.
2. Discharge by agreement.
3. Discharge by frustration.
4. Discharge by breach.
5. Anticipatory (or repudiatory) breach.
Insolvency is a
state of
financial
distress in
which a
business or
person is
unable to pay
their bills. It can
lead
to insolvency
proceedings, in
which legal
action will be
taken against
the insolvent p
erson or entity,
and assets may
be liquidated to
pay off
outstanding
debts
 Time of essence
 "Time is of the essence" is a term used in contract law in England and Wales,
Canada, Australia, New Zealand, other Commonwealth countries and the
United States expressing "the need for timely completion", i.e. indicating
that one or more parties to the agreement must perform by the time to
which the parties have agreed if a delay will cause material harm.
 However, in the case of Foundation Development Corp. v. Loehmann's Inc.
788 P.2d 1189 (Arizona 1990), in which the lease included a Time is of the
essence clause, the court ruled that a minor delay did not cause material
harm and thus no breach of contract occurred.
 "Time is of the essence" is contrasted with an "express clause", where a
specific contract term must be performed to avoid breach, such as in the
court decision in Dove v. Rose Acre Farms, Inc. 434 N.E.2d 931 (Ct. App. Ind.
1982).
 "Time is of the essence" is also contrasted with "reasonable time", where a
delay in performing may be justified if it is reasonably required, based upon
subjective circumstances such as unexpected weather, and the phrase time
at large, which describes a situation where there is no date for completion,
or where the date for completion has become invalid.
 The contractor is then no longer bound by the obligation to complete the
works by a certain date.
 Survival clause
 The Survival clause specifies which contract provisions will remain
in effect after the termination or expiration of the agreement.
 Common obligations covered by Survival clauses include
Confidentiality, Non-Competition, and Effect of Termination.
 After these core obligations, the Survival clause can be highly deal-
specific, with certain representations, warranties, and other
obligations also continuing.
 Survival clauses are necessary if the disclosing party (eg. your
employer) wishes to have something persist after the contract's
termination.
 These clauses are important to consider because they may cause
certain rights or liabilities to continue even after the end of the
contract.
Arbitration and jurisdiction
clause
Arbitration clauses and jurisdiction clauses
are frequently included in contracts entered
into between parties.
Both types of clauses are designed to set
out the procedure that shall govern any
dispute arising from or in connection with
the contract.
 Arbitration clauses and jurisdiction clauses
are both dispute settlement provisions.
 Arbitration and jurisdiction
clause
The arbitration clause is a private dispute resolution
scheme. It reflects the parties' will to avoid proceedings
before national courts and to refer any potential dispute
that may arise from or in connection with their contract to
an arbitrator.
On the other hand, the jurisdiction clause aims at
determining in advance the national court that will have
exclusive jurisdiction to adjudicate any disputes that may
arise in connection with the parties' contractual
relationship.
Both types of clause depart from ordinary subject-matter
(for the arbitration clause) and territorial (for the
jurisdiction clause) jurisdiction rules.
As such, they must be set forth in writing and expressly
accepted by the parties and they are enforceable only
Arbitration and jurisdiction
clause
 Risk Allocation in Contracts
 Risk allocation is often the dispositive issue in mistake and
impracticability cases.
 The analysis of risk allocation is relatively straightforward: if
the party adversely affected by the event had expressly or
impliedly assumed the risk of its occurrence, the non-
performance cannot be excused even if all other elements of
a defense or excuse are satisfied.
 The first place to look in determining risk allocation is the
contract itself.
 If the parties realized that a particular future event could
affect performance, the contract may include an express
and specific term assigning risk.
 Even if the parties do not have a particular contingency in
mind, the contract may have a more general provision
allocating the risk of disruptions or calamities.
 Such general provisions are called force majeure clauses.
 Risk Allocation in Contracts
In addition to a force majeure clause, a contract
may impliedly place risk on a party by means of
a provision such as a warranty, an undertaking
to obtain insurance, or some other commitment
from which the assumption of risk may be
inferred.
It is good planning for the parties to consider
potential risks and to provide for them clearly in
the contract.
This reduces the possibility of later disputes and
litigation.
 Drafting contract exclusions
 Contract exclusions are specific conditions, situations, and circumstances that
may or may not be explained in the terms of the contract.
 An exclusion clause is a term in a contract which seeks to exclude or limit the
liability of one of its parties. For example, it may state that a party has no liability
if the contract is breached or, alternatively, seek to limit the range of remedies
available or the time in which they can be claimed.
 An exclusion clause seeks to exclude or restrict the rights of parties to a contract.
 Different rules apply dependent on whether it is a business to business or a
business to consumer contract.
 With business to business contracts it is essential to ascertain whether the
exclusion or limitation clause is caught by the Unfair Contract Terms Act 1977
(“UCTA”) or common law.
 UCTA will apply if the contract is based upon one parties’ standard written terms.
If UCTA applies, you cannot exclude or limit liability for death or personal injury
due to negligence, or liability for breach of the implied terms as to title goods, or
for fraudulent misrepresentation.
 Under common law you cannot exclude or limit liability for a parties’
fraud/dishonesty. Under UCTA, other types of liability can be excluded if the
“reasonableness” test is satisfied. Common law principles apply to bespoke
business to business contracts which have been fully negotiated.
 In these cases, you have to consider if the exclusion clause has been incorporated
 Top Tips for effective drafting of contract
exclusions
Effective exclusion and limitation clauses should contact
the following elements:

1. Clear statements that certain types of liability are not

excluded.
2. Separate and distinct exclusion and limitation
clauses.
3. Use clear language for all exclusion clauses.
4. Be clear whether UCTA applies or not and draft
accordingly.
5. Specific exclusion clause for loss of profit.
6. Clear and express exclusions of all indirect and
consequential losses setting out what is
indirect/consequential.
 FORCE MAJEURE CLAUSE – POST COVID-19
Neither party will be liable for failure or delay to perform obligations
under this Agreement, which have become practicably impossible
because of circumstances beyond the reasonable control of the
applicable party. Such circumstances include without limitation
natural disasters or acts of God; acts of terrorism; labor disputes or
stoppages; war; government acts or orders; epidemics, pandemics or
outbreak of communicable disease; quarantines; national or regional
emergencies; or any other cause, whether similar in kind to the
foregoing or otherwise, beyond the party’s reasonable control.
Written notice of a party’s failure or delay in performance due to
force majeure must be given to the other party no later than five (5)
business days following the force majeure event commencing, which
notice shall describe the force majeure event and the actions taken
to minimize the impact thereof. All delivery dates under this
Agreement affected by force majeure shall be tolled for the duration
of such force majeure. The parties hereby agree, when feasible, not
to cancel but reschedule the pertinent obligations and deliverables
for mutually agreed dates as soon as practicable after the force
 Contract Close Out
 A Contract Closeout occurs when
a contract has met all the terms of
a contract and all administrative actions have
been completed, all disputes settled, and final
payment has been made.
 This includes those administrative actions that
are contractually required; i.e. property, security,
patents, and royalties.
 Class Activity: 20
minutes

With reference to a
specific project or
contract you once
participated in, explain
the contract close out
process in detail.
 Contract Management
Software
Contract management software allows users to track and
manage contracts through the various stages of their lifecycles.
These include:
 Authoring or drafting contracts
 Negotiating with the parties involved
 Soliciting contract approvals
 Executing contracts
 Tracking obligations
 Making amendments
 Renewing
Among other things, this type of software helps businesses with
renewal notifications, compliance management, capturing digital
signatures and managing contract templates, as well as
document storage and version control.
 Common Functionality of Contract
Management Software
Allows users to standardize contracts
by letting them drag and drop contract
language from a library of approved
Contract drafting
clauses or sections. Certain solutions
provide customizable, industry-specific
templates.
Enables users to organize, track and
automate the contract lifecycle. This
includes monitoring contracts to
Lifecycle management enforce their obligations,
understanding negotiation terms,
collecting payments, seeking
approvals and creating amendments.
Allows users to monitor and keep track
of contract milestones by sending
automated notifications at predefined
intervals. Also enables sending
Alerts and notifications
automated alerts to sales personnel
associated with contracts nearing their
renewal dates about entering into
contract re-negotiations.
 Common Functionality of Contract
Management Software
Allows users to monitor contract
commitments and report any deviations
Compliance management from the approved workflow. Also
enables users to benchmark contracts
against existing regulatory frameworks.

Enables the generation of customizable

reports and dashboards to allow users
to measure contract performance by
Analytics and reporting metrics such as contract type, contract
status, contract timeframe, account
executive efficiency and revenue
realization.

Enables users to store all contracts in a

centralized repository for future
reference. Also allows users to store
Document management
standard contract templates and
implement version control on different
copies of the same contract.
 Common Functionality of Contract
Management Software

Enables stored contracts to be

searchable. Certain solutions allow
Contract search indexing by assigning metadata
(e.g., author and file format) to
documents in a library.

Most contract management tools

on the market are “best-of-breed,”
focusing on a specific group of
features. However, some solutions
Third-party integration
can integrate with other software,
such as CRM, ERP and
supply chain management
solutions.
 Benefits of Contract
Management Software
Centralizing information.
 Contract management centralizes all
contract related documents within a single
location and makes them searchable for
retrieval in the future.
 This process ensures that no contract is
ever lost, enabling account executives to
monitor contract commitments and track
their renewal cycles.
Collaborative authoring.
 Large enterprises are usually bound by complex
contracts involving several internal departments
or external vendors.
 This complexity can sometimes result in several
parties creating their own terms and stitching
them together, which can lead to the different
interpretation of contractual terms by the parties
involved.
 Contract management software helps eliminate
such loopholes by allowing different stakeholders
to collaboratively author contractual terms and
approve certain language and section definitions
to avoid later conflict.
Compliance enforcement.
 Contract software allows users to monitor
contract milestones by tracking important events
such as periodic review dates or contract
expiration dates.
 These solutions also provide alerts or notifications
to account managers for contracts nearing their
milestones, and can escalate reports if there are
any deviations from the predefined workflow.
 Certain features can also enable the provisioning
of time-dependent deliverables and help manage
additional costs or penalties associated with the
delays.
Data analytics
 Contract management vendors are quickly realizing
the benefits and opportunities that data analytics
provides in accelerating the decision-making process
of organizations.
 Data analytics can be applied on a stored contract
repository to measure the optimum amount of time
an enterprise has to wait before making price
concessions, helping them to negotiate better
contract terms.
 Analytics can also help companies monitor their
contract negotiation cycles, suggesting the best time
for executives to begin negotiations if a contract has
to be closed in a predetermined timeframe.
 The 7 Best Contract Management
Software for 2021
Best Overall: PandaDoc.
Best for Small Businesses: DocuSign.
Best for Large Businesses: Concord.
Best Free Option: Juro.
Best for Customization: Agiloft.
Best for Reporting: Outlaw.
Best for Automation: ContractWorks.
4 Key Elements to a Successful
Contract Management Strategy
Validated Vendor Data
It is critical to know that the company you
are intending to establish a contract with is
who they say they are, and that the
information can be validated through
outside resources.
Prior to executing the contract, check the
vendor’s legal and financial health and verify
they are not on any government watch lists.
Accurate information on all the companies
with existing contracts is vital to risk
monitoring and control.
Utilize a Contract Manager
System
Implement an online repository for all
contracts and associated documents.
The repository should be accessible by a
defined number of users with associated
contract level security.
Use this repository to store all documents
associated with a contract and apply a
process for linking to ensure that all
relevant documents can be found when
necessary.
Establishing a centralized electronic
contract database puts you in control of
your agreements.
Utilize Notifications, Notes and
Other Documents
Track all contract milestones,
monitor contract compliance
and maintain a complete
history of contract activity.
The ability to receive
interactive data and alerts on a
contract is essential to saving
time and money.
Continually Monitor Vendor
status
Automated updates to changes in your vendors’
profile can help identify potential risks to your
supply chain.
Changes in ownership and regular reviews of
financial/legal status can proactively indicate
the need to modify or even terminate a vendor
relationship.
Continual monitoring for government sanctions
and fraud is imperative for compliance.
Closely monitoring your vendor contracts is a
key component to drive compliance and
ultimately reduce contract management costs.
Contract Invoice Payment,
collection, incentives & penalties
 all payments are made within contract and commercial terms
unless there is a dispute; every endeavor is made to collect
moneys owing within terms;
 disputes must be resolved as quick as possible with a view to
maintaining good stakeholder relations;
 where disputes appear irresolvable, every effort should be made
to make early decisions to avoid protracted legal action and
relationships should be discontinued where the other party is at
fault; and
 incentives and policies must be linked to the outcomes of the
contract and the strategic objectives of the institution.
 Consideration should be given to paying substantially quicker than
contract or commercial terms to encourage businesses to work
 Detail regarding procedures for payment, collection and
measurement of incentives and penalties must be contained in
the relevant procedure manuals.
The three-way match
 In the accounting and bookkeeping area of accounts
payable, the three-way match refers to a procedure used
when processing an invoice received from a vendor or
supplier.
 The purpose of the three-way match is to avoid paying an
incorrect and perhaps fraudulent invoice.
The "three-way" part of the three-way match refers to the
three documents that will be compared:
The vendor's invoice that was received and will become
part of an organization's accounts payable when it is
approved
The purchase order that was prepared by the organization
The receiving report that was prepared by the organization
The three-way match
 The "match" part of the three-way match refers
to comparing the quantities, price per unit,
terms, and other information appearing on the
three documents.
 In other words, does the vendor's invoice detail
agree with the organization's purchase order,
and to the goods actually received as shown on
the organization's receiving report?
 Only if the details on the three documents are in
agreement will the vendor's invoice be entered
as an account payable.
Third Party Rights Clause
The principle says that only parties to a
contract may enforce the terms of the
contract. A third party to a contract is
anyone who is not a party to it.
Enforcement might take the form of:
claiming for damages arising from a breach
of contract
an injunction to prevent an anticipated
breach of contract by one of the
contracting parties
specific performance of the contract
Status of Third Parties

 The existence of the right to enforce the contract does not make
the third party a party to the contract. The third party simply has
the right to sue on the contract, claim damages or an injunction
as if they were a party to the contract.
 This example clause excludes the operation of the Contracts
(Third Party Rights) Act altogether.
 Drafting clauses such as these to grant rights to third parties (as
opposed to exclude them) is a form of art. It depends on the
rights to be granted, to whom they're to be granted and the
limitations to those rights intended to be granted.
 Permitting third parties to have rights under a contract expands
the exposure to risk of the contracting parties: they could be sued
by any person deriving a benefit from the contract
Third Party Rights Clause
No person who is not a party to this Agreement will have any
right to enforce it pursuant to the Contracts (Rights of Third
Parties) Act 1999.
 CLASS ACTIVITY: 10 MINS
Using an example from
your industry, explain the
circumstances that would
result in a contract
variation and explain the
procedures that must be
followed to effect contract
variation?
 Variation of contract
In simple terms, a contract
variation occurs when the parties
agree to do something differently
from the way they originally
agreed, whilst the remainder of
the contract otherwise operates
unchanged. ... Such an agreement,
if valid, would amount to a
variation of the existing contract.
 Entire agreement clause
 An entire agreement clause in a contract An example of a
asserts that the contract constitutes the comprehensive entire
whole agreement between the parties agreement clause would be
and seeks to prevent the parties from as follows: “1. ... Each party
relying on any preceding agreements, acknowledges that in entering
into this agreement it does
negotiations or discussions that have not
not rely on, and shall have no
been set out in the agreement. remedies in respect of, any
 The purpose of an entire agreement representation or warranty
clause is to make clear that the (whether made innocently or
document in which it appears (and any negligently) that is not set out
other documents specified) constitute in this agreement.
the whole agreement between the
parties.
 This helps ensure contractual certainty:
the parties know that the agreement is
confined to the four corners of the
document.
Joint and several laiblity
In law, joint and several liability makes all
parties in a suit responsible for damages up to
the entire amount awarded. That is, if one
party is unable to pay, the others named must
pay more than their share.
Parties to a joint and several contract are thus
bound jointly, so they are liable for the entire
obligation, and severally, so each may be sued
separately for the entire loss.
This allows individual promisors to be sued for
enforcement of a contract without joining all
co-promisors.
 Severance clause
Severance clauses set out a procedure which the parties
intend to take where a court rejects the bad parts of a
contract.
Any part, provision, representation or warranty of this
Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof.
Any part, provision, representation or warranty of this
Agreement which is prohibited or unenforceable or is held to
be void or unenforceable in any jurisdiction shall be
ineffective, as to such jurisdiction, to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof
The outcome is that what is left are the enforceable and valid
parts of the contract.
Indirect and consequential
loss
In assessing damages for breach of contract:
Consequential loss (also known as indirect loss) arises
from a special circumstance of the case, not in the usual
course of things.
Direct loss is the natural result of the breach in the usual
course of things.
Exclusion and limitation clauses in commercial contracts
are used to control, or put a cap on, a party’s liability.
One of the most common types of clause is one that
attempts to limit liability for “indirect or consequential”
loss or damage.
The reason for wishing to exclude liability for “indirect or
consequential” losses is that these losses may be
unpredictably large, or open-ended, representing an
“unquantifiable risk”.
Whoever causes the death of any person by doing
any rash or negligent act not amounting to
culpable homicide, shall be punished with
imprisonment of either description for a term which
may extend to two years, or with fine, or with
both.”
You can't exclude liability for death or personal
injury caused by your negligence. ...
You can only exclude liability for other losses
caused by your negligence, if reasonable
. When dealing with a consumer, your standard
terms can't exclude or restrict liability for breach
unless reasonable.
 Indemnities
An indemnity is a promise by one party to take financial
responsibility for damages that the other party may suffer
as a result of the first party’s breach of its warranties under
the agreement.
 Where contracts include representations and warranties,
an indemnification clause should also be included.
Pursuant to such indemnities, each party would agree to
pay any damages and costs of litigation involved from a
breach of its warranties.
Since both parties should be willing to bear the cost for
problems resulting from breach of their warranties
(especially damages to third parties resulting from a
breach of a party’s warranties), an indemnity clause serves
as a mechanism for allocating the risk of loss from certain
problems
Why add idemnty to a
guarantee
One advantage of an indemnity benefit contract
is that it can be structured to cover any type of
expected loss. Both parties to the contract know
what will be paid under what circumstances. One
problem with an indemnity benefit contract is
that it can be a complex process determining
whether or not a loss is covered. Another
disadvantage is if the indemnity does not cover
the losses incurred.
Indemnity clauses are used to manage the risks
associated with a contract, because they enable
one party to be protected against the liability
arising from the actions of another party.
Class activity
1. Can indemnity be capped?
2. Does an indemnity give you 100% of your
loss?
3. Can you indemnify death?
4. Does an indemnity survive contract
termination?
These are damages directly between the two parties to
the agreement.
This makes sense to be capped.
As between the two parties themselves directly, the
value of the deal should be in line with the amount of
risk.
The parties may therefore seek to manage these risks,
either by imposing caps on liability, and/or by adopting
different risk allocation models such as the use of 'knock
for knock' indemnities. ...
Often an overall cap on liability will be agreed at no
more than 100% of the contract price
Therefore if the relevant event occurs before the
contract is terminated, the indemnity clause is usually
considered an enduring provision and one party is still
obligated to indemnify the other even after termination
of the contract.
 Promises to negotiate
 A promise may be defined as the manifestation of intention to act or
refrain from acting in a specified way, so made as to justify the one
to whom the promise is addressed in understanding that a
commitment has been made.
 Typically, the parties to a contract make multiple promises.
 From a drafting standpoint, parties sometimes use language other
than the word “promise” in expressing their commitments to future
performance.
 Language to establish a promise includes the use of “shall”, “will”,
“must”, “is obligated to”, “covenants” or “agrees to” (but see
above .
 Failure to perform the obligation created by an enforceable promise
constitutes a breach of contract, which breach entitles the promisee
to a remedy from the promisor.
 Remedies for breach of promise can include compensatory money
damages or a discharge of the promisee’s own duties of
performance (if any) under the contract.
 Promises to use best endeavours
If you say you will use your best endeavours, you
are agreeing to do everything in your power, i.e.
to take the steps a prudent, determined and
reasonable person, acting in his own interests
and wanting to achieve the desired result, would
take.
It is an obligation to take all steps that a prudent
and determined person acting in their own
interests and desiring the result would take.
The promisor must do all in its power to bring
about the result, even if that means
subordinating its own interests.
 Sole and absolute discretion
If you have sole discretion then you Eg: The terms “sole
are the only person with the discretion” and “absolute
discretion” with respect to
freedom to decide how to act or any determination to be
what should be done in a particular made a Party under this
situation. Agreement shall mean
the sole and absolute
Absolute discretion means discretion of such Party,
complete and total discretion, not without regard to any
limited in any way. standard of
reasonableness or other
That sounds good, if what the standard by which the
settlor intends is to give the trustee determination of such Party
the broadest possible authority to might be challenged.
make or not make distributions.
Translating legal terms
 Legal translation is the translation of language used
in legal settings and for legal purposes.
 Legal translation may also imply that it is a specific
type of translation only used in law, which is not
always the case. ...
 Legal translation is thus usually done by specialized
law translators.
 When translating legal terms, the translation must be
consistent, clear, unambiguous, and accurate.
 Phrases which have a specific legal significance must
always be translated in the same way.
 That is why it is best to have legal documents
translated by court interpreters.
Change of governing law
For agreements that are short in duration
there usually isn't a problem when laws
change. ...
The longer the duration of the contract the
more a change in a law can have an
impact.
The simplest situation would be if a law
make performance under the contract
illegal, in which case performance would be
excused.
Areas of agreement not reduced to
writing
Reduce to writing means put in writing all of the
details of the contract. ...
Like an agreement/decision has been made so now
lets make it official and put it into a written
record/contract.
Oral contracts are verbal agreements between two
parties.
An oral contract occurs when spoken words are
rendered valid and legally enforceable in a court of
law.
However, an oral contract is not legally enforceable
unless it is provable in court, and it must meet
various requirements of contract formation.
Letter of Comfort (law of
contract)
 A letter of comfort, sometimes called a "letter of intent", is a
communication from a party to a contract to the other party
that indicates an initial willingness to enter into a contractual
obligation absent the elements of a legally enforceable
contract.
 The objective is to create a morally binding but not legally
binding assurance.
 Generally, a letter of comfort is drafted only in vague terms, to
avoid creating enforceable contract terms.
 Few nations regulate letters of comfort by statute; whether a
letter of comfort creates legally enforceable contractual terms
is often determined only by courts of law, based solely on the
wording of the document.
 Despite their nonbinding status, letters of comfort nonetheless
provide risk mitigation because the parent company is putting
its own reputation in jeopardy
 Letter of Comfort (law of
contract)
 In international contracts, letters of comfort are often used to
assure a contracting party that a parent corporation will provide
its subsidiary with the necessary resources to fulfill the contract.
 However, under both international and European Union law, a
letter of comfort does not require the parent corporation to fulfill
the obligations incurred by its subsidiary.
 When used to provide support for a subsidiary's actions, a letter
of comfort usually consists of three terms:
 A statement from the parent organization acknowledging that its
subsidiary has entered into a contract.
 A promise that the parent organization will not sever its legal
relationship with the subsidiary until contractual terms are
satisfied.
 A statement of comfort (e.g., "it is our policy" or "it is our
intention") indicating how far the parent organization will go to
support the subsidiary in fulfilling its contractual terms.
 How do you write a comfort
letter?
 Keep warm tone of the letter;
 Try not to describe in detail why you feel sorry for the
addressee (i.e. Do not disassemble the prime factors of
failure);
 In private letters, line refers to the emotions;
 Official letter contains a formula of having someone to
comfort, you should not create false hopes that the answer is a
definite refusal. However, a bit of compassion will do no harm;
 Introduce a positive outlook for the future or possibly a
proposal to solve the problem, an alternative way;
 Avoid lofty, grandiloquent phrases that sound artificial;
 Think well about the contents of the letter, bearing in mind its
main purpose, which is to comfort the other person. Do not
write the letter, if only it would aggravate the pain.
 Heads of Terms
“Heads of terms” denotes a document signed by two
parties intending to enter into a formal contract.
Such a document is also commonly referred to as a
memorandum of understanding or a letter of
intent. ... A further benefit of the use of heads of
terms is that they can contain “lock-out” provisions.
A heads of agreement document will only be
enforceable when it is adopted into a parent contract
and is subsequently agreed upon, unless otherwise
stated. ...
However, such documents can be legally binding if
the agreement document contains terms or
language which explicitly indicates a binding
intention.
Memorandum of
Understanding
A memorandum of understanding is a
document that describes the broad outlines
of an agreement that two or more parties
have reached.
MOUs communicate the mutually accepted
expectations of all of the parties involved in
a negotiation.
While not legally binding, the MOU signals
that a binding contract is imminent.
Memorandum of
Understanding
Importantly, care should be taken to ensure
that any MOU clearly records that, apart
from those matters expressly agreed to be
legally binding, each party regards the
remaining terms of a MOU as non-binding
so that the parties are able to avoid being
unintentionally bound to terms which were
intended to remain open for ...
Drafting a Memorandum of
Understanding
 Identify the parties: It should specify the name of the parties
between whom memorandum of understanding is being signed.
 Purpose: It should clearly specify the purpose and the goals for which
the memorandum is being signed.
 Duration: The memorandum should specify the duration of such an
agreement between the parties i.e the beginning and the ending dates
of the memorandum. Also, it should provide for the circumstances in
which such memorandum will be terminated.
 Meeting and Reporting: It should specify the plan for the meetings
between the parties. For instance, parties can decide to meet at least
once in a quarter.
 Financial Considerations: The memorandum should specify the
amount of capital contribution to be made by the parties. It should
also mention the person authorized to make the major financial
decisions. The financial record keeping of the assignment/program
being undertaken should also be maintained.
 Management: The memorandum may provide for the appointment of
the persons to take care of the day to day operations of the program.
The role, responsibilities, and remuneration should also be mentioned.
 Signed with dates: Once the MOU is prepared and agreed upon by
parties involved, it should be signed and dated by the authorized
individuals representing each party or organization.
Lock out vs Lock in
Agreements
 A lock-out agreement (sometimes called an exclusivity
agreement) is intended to stop the seller negotiating
with other parties during the lock-out period.
 The Court of Appeal has confirmed that
such agreements are enforceable.
 A lock-in agreement, by contrast, is an agreement that
the parties will commit to negotiating with each other
until a deal is agreed, and is considered to be
unenforceable in the UK or English Law.
 If the pre-contract process is likely to last for months
(rather than weeks) then it is worth thinking about
whether an option agreement or a pre-emption
agreement might be more appropriate than a lock-out
agreement.
 Contract Consideration
In order for any contract to be enforceable,
courts generally require three things: mutual
assent (agreement to the contract terms), a
valid offer and acceptance, and consideration.
Consideration is basically the exchange of
something of value in return for the promise or
service of the other party.
In order for a contract to be enforceable, the
consideration that is exchanged must be
deemed “adequate”. This means that the
mutual exchange must involve a fair price in
comparison to the promise that is being made.
 Contract Deed
Most contracts made in writing will be simple
contracts but some will be deeds.
Deeds are used because either the law requires their
use or because a deed has certain advantages. ... a
simple contract can be entered into orally but a deed
must be in writing; a deed must make it clear that it is
intended to be a deed.
A deed is a written document which is executed with
the necessary formality (that is, more than a simple
signature), and by which an interest, right or property
passes or is confirmed, or an obligation binding on
some person is created or confirmed.
Deeds are generally enforceable despite any lack of
consideration.
Commencement and Duration
Clause
All clauses and schedules in this Agreement
shall take effect immediately.
Once in force, the provisions of this
Agreement shall continue in force and shall
bind the Parties from time to time until this
Agreement is terminated.
 Implied Law
An obligation created by law for the sake of
justice or to avoid unjust enrichment.
Operates as a valid contract for purposes of
remedy only; the general rules of contract
do not apply to contracts implied in law.
Also termed a quasi-contract
 Implied Contract Terms
 Implied contract terms are items that a court will
assume are intended to be included in a contract,
even though they are not expressly stated. ...
 When it is not possible to cover every possible detail,
a lawyer may appeal that such terms were implied to
give force to the intent of the contract.
 Express terms are the terms of the agreement which
are expressly agreed between the parties. ...
 Implied terms are terms implied into the contract by
the courts.
 They are not expressly set out in the contract but are
taken to be as effective as if they were and as if they
had been included from day one of the contract.
 Implied Contract Terms
A contractual term that has not been
expressly agreed between the parties, but
has been implied into the contract either by
common law or by statute.
Implied terms can be expressly excluded by
the following types of provisions:
Entire agreement clauses: to exclude
implied terms effectively, the entire
agreement clause should use clear, express
words to this effect.
 Interpreting Contracts
Interpreting contracts in English law is an
area of English contract law, which
concerns how the courts decide what an
agreement means.
It is settled law that the process is based on
the objective view of a reasonable person,
given the context in which the contracting
parties made their agreement.
 Contract Management Policies
and Procedures
At least the following should be reviewed each time the contract
management policies are reviewed.
 Identification and classification of all contracts
 Management intervention of contracts based on classification
 Recognition, measurement and disclosure for financial reporting
 Planning and budgeting for contracts
 Oversight of contract management
 Resourcing contract management activities
 Document and information management
 Relationship management
 Performance management
 Payment, collection, incentives, and penalties
 Risk management
 Procedure manuals covering the Contract Life Cycle for all contracts
 Identification and classification of
contracts
The policy must state that all contracts are to be identified and
classified for management control purposes based on at least the
following attributes:
 contract type or nature;
 strategic importance of the goods and services being purchased or
sold;
 contract value;
 contract duration; and
 contract complexity.
 It must indicate the level of manager that is responsible for
maintaining Contracts Inventories and the consolidated Contracts
Inventory for the entire institution with reference to the official
delegation.
 Certain key contract types may be specifically mentioned in the policy.
 The classification methodology and appropriate management control
mechanisms may be detailed in procedure manuals.
 Recognition, measurement and
disclosure Policy
The policy will state how contracts will be
measured for reporting in the annual financial
statements and associated disclosures and will
be included in the accounting policies to the
Annual financial Statements.
This will be according to accrual accounting
concepts and the relevant accounting standards
The Policy on recognition, measurement and
disclosure must also state that a full review of
obligations and potential obligations of all
relevant parties arising from all existing contracts
must be undertaken as part of preparation of the
Annual Financial Statements and Annual Report.
 Planning, budgeting and reporting
cycle Policy
The policy must state that a comprehensive review of all
existing and proposed contracts must be undertaken during
the strategic planning and budget process and that:
 operational plans must specify contracting requirements;
 objectives of each contract are linked to the strategic
objectives of the institution;
 contracting requirements are communicated to internal
and external stakeholders;
 contracts are linked to the annual procurement or sales
plan; and
 the contract management function is reviewed.
 The policy must require appropriate reporting mechanisms
for in-year and end of year reporting.
Oversight of contract management
Policy
The policy must set out the oversight and
governance structure for contract
management including reference to official
delegations and reporting structures and
mechanisms.
The policy will set out the frequency of
review of policy and procedures and
contract management function
 Resourcing contract management
activities Policy
The policy must state the competency requirements for
all staff dealing with contracts, that an annual training
plan must be in place, and outline the roles for:
 contract owners;
 contract managers;
 finance;
 legal;
 executive authority / accounting officer;
 risk management / internal audit; and
 audit committee.
The policy should also refer to frequency of review of
processes and systems (manual and computerised).
Document and information
management Policy
The policy must state that all documents and
information contained in those documents must
be appropriately recorded and filed according to
the procedures in place for each contract or
contract type.
It will also state the approach and time frame
for moving document and information
management to electronic systems.
Detail regarding information to be recorded,
filing, document changes, and document
distribution will be contained in the relevant
procedure manuals.
Relationship management
Policy
The policy must set out the classification
frameworks for relationship management
for purchasing, sales, and any other
contracting areas. It must also set out the
approach for stakeholder education and
accreditation in terms of the frameworks.
Detail regarding specific processes to follow
for accreditation and monitoring and
evaluation of stakeholders will be contained
in the relevant procedure manuals
Performance management
Policy
The policy must require that performance
management systems and processes are in
place for:
contract performance;
supplier, buyer and other stakeholder
performance; and
contract management performance.
Detail regarding reporting structure,
content, frequency and recipients will be
contained in the relevant procedure
manuals.
Risk management Policy
The policy must state that appropriate risk
analysis, identification, assessment and proposed
risk response is conducted during contract
planning to identify potential problems and
provide mechanisms to limit risk and deal with
issues as they arise.
The policy should also require attention to risk
analysis during contract review, closeout and or
renewal.
Detail regarding the risk analysis, identification,
assessment and response for each contract or
contract type will be contained in the relevant
procedure manuals.
Supplier Selection Process
The supplier selection process is an important
part of the procurement department’s job.
Streamlining the purchase to pay process enables
procurement to spend more time finding the right
suppliers and negotiating the best possible deals.
If you can find a supplier that offers products or
services that match or exceed the needs of your
business, those will be the most effective for you
to work with. Before you start selecting suppliers,
nail down your business needs and what you
want to achieve by buying rather than simply
paying for the items suppliers are looking to sell
to you.
Supplier Selection Process
Purchasing from a carefully targeted group
could give you a number of benefits.
Your business will become more important
to your suppliers
It will be easier to address supply chain
management and maintain supplier
relationships
You may be able to leverage deals that give
you a better competitive advantage
Factors to select best
suppliers
Reliability
Supplier Quality
Value for the Money
Financial Security
Clear Communication and Service
Pre-Qualification Criteria
 What is Due
Diligence?*

Due diligence is an
investigation of a business or
person prior to signing a
contract, or an act with a
certain standard of care.
It can be a legal obligation,
but the term will more
commonly apply to voluntary
 Activities of Due
Diligence
 Financial Statements:
– Review and confi rm the existence of assets, liabilities,
and equity in the balance sheet to determine the
fi nancial health of the company based on the income
statement.
 Management and Operations review:
– Determine quality and reliability of fi nancial statements
to gain a sense of contingencies beyond the fi nancial
statements.
 Legal Compliance Review:
– Check the potential future legal problems stemming
from the target's past.
 Document and Transaction review:
– Ensure paperwork of the deal is in order and that the
structure
of the transaction is appropriate.
 Need for Due
Diligence
 Strengths and weaknesses of the business

 Gives a fair value of the investment

 Helps in identifying the apparent irregularities

 Tool of ensuring that the prevailing system of

checks works
 What does Due diligence
involve?

 Historical Financial Data

 Current Financial Data
 Forecasted Financial Information
 Business Plans
 Minutes’ of Directors’ Meetings and
Management Meetings
 Audit Paper Work Files
 Contracts with Suppliers, Customers and
Staff
 Confirmation/ Representations from
Financiers, Debtors, etc.
People Involved in Due
Diligence
Financial
Legal
Operational
Investigators
Risk Managers
Steps in Due Diligence
Process
Due Diligence
Reporting
 Should refl ect a fair and independent
analysis & evaluation of fi nancial and
commercial information

 Should ensure collection, analysis and

interpretation of financial, commercial and tax
information in detail

 Should provide properly reviewed and

analyzed fi nancial information to bidders
and various stakeholders

 Should also provide a feedback on auditing

 Financial Due
Diligence
 involves evaluating a company’s historical,
current, and prospective operating results as
disclosed in its historical, current and projected
fi nancial statements, tax returns, and other
information
 Involves analysis of balance sheet, review
from cash to marketable securities,
receivables, inventory, prepaid expenses
and other current assets, as well as the
value of fixed assets.
Financial Due Diligence
 Analysis on the liability side includes
accounts payable, taxes, and debt
obligations must be closely examined
 Helps in getting a sense of future
revenues
 Evaluates the underlying assumptions
used
Legal Due
Diligence
 Scrutiny of all, or specific parts, of the legal affairs
of the target company with a view of uncovering any
legal risks and provide the buyer with an extensive
insight into the company’s legal matters
 Improves the buyer’s bargaining position and
ensures that necessary precautions in relation to
the transaction are taken
 Objectives of Legal Due
Diligence
 Gathering of information from the target
company,
 Uncovering of the target company’s
strong and weak sides, relevant risks
and advantages in connection with the
transaction,
 Minimizing the risk of unexpected
situations,
 Improvement of the seller’s bargaining
position,
 Identification of areas where
representations and warranties from the
Operational Due
Diligence
 Involves the on-site analyses of the target business
daily processes and of how the business operates.
 Analysis includes an evaluation of the key
employees, managers, independent contractors,
suppliers and other factors necessary for the
business to conduct normal operations
 May also cover investigation outside of the actual
business.
Operational Due
Diligence
 Includes examining work centres,
material flow, scrap generation, and
inventory levels to identify
improvements required to improve
productivity and profitability
 Involves gathering information on:
– New product or service creation
– Markets
– Competition
– Sales Targets
– People/Organizational matters
HR Due
Diligence
 Involves valuing the contribution of HR
 Helps by:
• Establishing a link between organizational
objectives and the HR function
• Determining HR's influence on the skills and
motivation of the
workforce
• Determining the managers views of the HR
function
• Ascertaining the outcomes produced by the HR
deliverables
• Measuring the adequacy of HR measures, metrics and
benchmarks
• Ascertaining the total cost of the HR function and
industry comparisons
• Ascertaining the HR team structure, skills and
Due Diligence -Key Customers and
Suppliers

• Strong need to initiate ongoing

monitoring of the operations and
plans of key customers and suppliers
as can reveal important information on
its current financial and operational
status and near- term future events.

• Also reveal a deteriorating financial

condition in advance.
 Eff ective Due Diligence
team
• Have members with fi rst hand experience in the
industry
to which the target belongs
• Have members with expertise in diff erent areas
such as HR specialists, Functional area managers,
individuals with knowledge of national culture,
etc. Capable of quickly identifying both the
positive and negative aspects of the property to
be acquired.
• Willing to carry out a site visit to evaluate the
current condition of the assets to be acquired;
both the physical assets as well as the personnel
• Have members who possess excellent negotiation
What Is a Legal Contract?
A contract is essentially a set of promises
that can be enforced by law.
Typically, a party promises to do something
for the other in exchange for a benefit.
A contract can be written or verbal and
involves one party making an offer and
another accepting.
If the contract's promise isn't kept, the
harmed party can seek a legal remedy.
Characteristics of a legal
contract
Legal purpose: A contract must have a
lawful purpose to be enforceable. For
example, if one business partner
contracted someone to kill another
business partner, but the person took the
money without fulfilling the contract,
there's nothing that can be done. A
contract of murder for hire is illegal and the
contract is unenforceable.
Mutual agreement: All parties to the
contract must have reached an agreement.
That is, one party must have extended an
offer to which the other parties have
Characteristics of a legal
contract
Consideration: Each party to the contract
must agree to give up something of value
in exchange for a benefit.
For example, you hire an independent
contractor to repave your driveway. You
and the paving contractor sign an
agreement in which you promise to pay a
sum of money in exchange for the paving
work. Both you and the contractor have
agreed to give up something of value. You
have agreed to pay money, and the
contractor has agreed to perform the
paving work.
Characteristics of a legal
contract
 Competent parties: The parties to a contract must be
competent. That is, they must be of sound mind, of legal
age, and unencumbered by drugs or alcohol. If you enter
into a contract with a person who isn't competent, the
contract can't be enforced.
 Genuine assent: All parties must engage in the
agreement freely. A contract may not be enforced if one
or more parties have made mistakes. Likewise, a
contract may be voided if one party has committed fraud
or exerted undue influence over another. For example,
you sign a contract in which you agree to sell your house
to your next-door neighbor for $1. When you signed the
contract, your neighbor was threatening you. Clearly,
you made the agreement under duress, so the contract
isn't valid.
Breach of Contract: options for
obtaining compensation
Sue for damages: You may file a lawsuit
against the contractor for damages. For
example, you might sue for the cost of
hiring another contractor to finish the job
plus the costs you have incurred due to the
delay.
Specific performance: You can compel the
contractor to complete the work required
by the contract.
Other remedies: If the contractor tricked or
forced you into signing the contract, you
might convince a court to terminate the
agreement or amend its terms.
Key Takeaways
 A legal contract is a legally enforceable agreement
between two or more parties. It may be verbal or
written.
 Typically, a party promises to do something for the
other in exchange for a benefit.
 A legal contract must have a lawful purpose, mutual
agreement, consideration, competent parties, and
genuine assent to be enforceable.
 If a contract is breached, you may be able to sue for
damages or seek other remedies.
 Contracts can be bilateral, which means each party
has made a promise to the other, or unilateral, which is
when one party makes a promise in exchange for an
act by the other party.
Conclusion
Contract management is a discipline that
supports commercial contract management
through the preparation, negotiation,
implementation and oversight of legally
enforceable performance commitments and
risk positions, both outbound (to the
market) and inbound (from the market).
THE END