Contracts are not static entities. Though a great deal of time and effort is invested in the negotiation of each business agreement, there always needs to be flexibility and scope for change and adjustment. This is because, in general, the global marketplace evolves at a breakneck pace, and business contracts need to accommodate the possibility of such shifts. This flexibility can be achieved, in part, by taking a scalable approach to the contracting process, which means developing an agreed strategy for contract amendments.
Types of amendment
To amend a contract is to make a change to the original agreement, so it is essential to complete the action in a way that is acceptable to all stakeholders, and also acceptable in terms of the rule of law. In this way, contract amendments can be used as a means to maintain the integrity of the contractual relationship, avoiding the potential of costly litigation when circumstances arise that threaten the purpose of the original agreement. It is vital, therefore, that contract amendments be made every time the nature of the relationship deviates from that which was initially agreed.
There are three types of contract amendment:
- Separate amendment description – By creating an additional document, a detailed description of how a particular section of the contract should be changed can be appended to the original contract. It is vital to include the specific language that is to be altered, the language that should replace it, and the date and signatory information.
- Section replacement with separate document – By creating an additional document, it is possible to set out the replacement of an entire section of the contract and append it to the original document. Again, the specific language that needs to be changed must be included, along with date and signatory information.
- Strikethrough – In the digital age, it is less common to take a pen to a contract and strikethrough language that no longer applies and, even before digitisation, this was considered to be a somewhat informal method of amending an agreement. However, it is still possible to do this in a legally recognised way, provided the written changes are clearly initialled and dated.
Mitigating amendment risk
Contracts are inherently risky, which is why risk mitigation and due diligence forms a significant part of the contract process. Any time a business enters into a transactional relationship with a third party, the risk of litigation, reputational damage, and financial loss to all parties is notably increased. When circumstances change, the relationship deviates from that which was originally agreed upon, and an amendment becomes necessary, the risk profile associated with that contract also changes. For this reason, every care must be taken to apply the principles of best practice to the amendment process.
1. Confirm that amendments are allowed
When creating contracts and amendments, the urge to make assumptions should always be avoided. Everything must be checked and re-checked before changes are made, and before anything is signed. Even though flexibility should be accommodated in all agreements, not every contract allows for amendments to be made. On occasion, contracts may be drawn up incorporating language that prevents the use of amendments. Before attempting to create an amendment, therefore, it is highly advisable to confirm that amendments are allowed.
2. Create the amendment as a separate document
Strikethroughs are quick and simple, but they can also cause a great deal of confusion. Amendments arise from changes in circumstances that increase risk, so they are used to mitigate that increased risk. Making written changes to the original contract document – even if those changes are initialled and dated – only increases risk further by adding confusion. Instead, creating the amendment as a separate document means that all the information is clear, and unambiguous. The document should be titled ‘Amendment,’ and should be dated and signed by authorised, verified personnel.
3. Approach the amendment like a primary contract
It can be tempting to rush through an amendment as something of an afterthought, not least because the work of coming to an agreement on the detail of the contract has already been completed. However, when we acknowledge that an amendment is required because the nature of the original has changed in some way, then we understand the importance of approaching an amendment with all of the same due diligence and caution that the primary contract was afforded. This achieves a great deal in terms of risk mitigation.
4. Keep it clear
The language of the amendment must be negotiated and agreed in the same way as the language of the primary contract but, crucially, should be precise, clear, and completely free of ambiguity. It should be written in such a way that the intention is immediately obvious. The goal of the language should be to rule out all possibility of misinterpretation. In addition, the amendment text should be formatted in such a way as to detail the exact location of the text that is being changed.
Contract Management Software for contract amendments
The permission-based access design of Contract Management Software makes it the ideal solution for contract amendments. Authorised personnel are able to access the centrally stored contract information, along with a range of clause templates. These templates are stored in a library that forms part of the centralised repository, making it easy to create and use standardised language. This means that those dealing with amendments can collaborate effectively and in a timely fashion, negotiating and agreeing language that protects all parties, from any web-enabled device, in any internet-connected location.
Version control is also accommodated with Contract Management Software, along with automated audit trails. The permission-based access feature ensures that all activity is comprehensively recorded, allowing for thorough tracking and tracing of any changes made by any team members. These personnel can also utilise the powerful customisable reporting tool available within the platform, to filter data pertaining to the specific amendment at hand, ensuring that all changes and updates are data-driven and fully informed.
Contact Symfact today to discuss your contract amendment needs.