Manual vs. Automated Contract Drafting
Utilizing automated contract drafting to create clearer agreements
As a business professional, knowing the ins and outs of contract drafting is critical to ensure that you enter better deals and don’t sign any that are not in your best interest. Many companies still rely on manual drafting, but automation is essential for creating better and clearer agreements more efficiently.
What is contract drafting?
Contract drafting is the process of writing down the terms and conditions of an arrangement. Before an official document is finalized, the stakeholders may go through several drafts and re-negotiations. The primary purpose of drafting a contract is to create a legally binding agreement that’s unambiguous, concise, and close to the parties’ goals and intentions.
Why is it critical to understand contract drafting basics?
Knowing how to draft a contract is an essential skill, whether you own a small business or are a senior manager of a large corporation. Understanding the steps to draft a contract will aid you in creating agreements that will be beneficial to your company and uphold in court while preventing you from signing something that may not be to your advantage.
The drafting and vetting of contracts process
In a Manual of Style for Contract Drafting, Kenneth Adams goes over the importance of understanding the foundations of sound agreements. Most agreements have the same basic structure and include several standard elements, including definitions of critical words, legalese that marks the beginning and end of a document, the rights and obligations of the parties, termination clauses, general provisions, and special clauses specific to your agreement.
Here are the basic steps to take when drafting a contract between two parties:
Determine if all parties can legally enter a contract
For an agreement to be valid, all parties must be considered capable of forming a contract. For instance, you cannot force someone into a legal agreement using coercion or duress, and in most cases, the parties must be over 18 years old. Additionally, the parties must be mentally fit and not under the influence of drugs or alcohol when signing the document.
Determine the consideration of the agreement
Consideration is the exchange of something between parties. It can include intellectual property, goods, services, or money. For a contract to be enforceable, you must clearly state the elements of consideration because an agreement cannot exist without one.
Set the agreement terms
When you draft a contract, you need to ensure that both sides can receive their desired outcome. The terms of the document should be created in good faith, without using deception. Additionally, the terms must be stated clearly and concisely, with any ambiguous terms defined.
Decide whether or not a confidentiality clause is necessary
If your agreement involves any private information or company secrets, it will be to your advantage to include a confidentiality clause when drafting the contract. If someone breaks the confidentiality agreement, they will be considered in breach of the contract.
Include a dispute resolution clause
A dispute resolution clause outlines how the parties will handle a breach of contract. It typically includes which party is responsible for attorney fees and whether or not you will use arbitration or litigation.
Include a termination clause
An agreement should always specify how long the parties will uphold it. Furthermore, it should include any actions that can cause early termination. In ongoing service deals, you may want to add a provision that lets either side give the notice to terminate without cause.
Ensure that the contract is legally compliant
If you want your agreement to be defendable in court, you must ensure that the terms and conditions don’t break any laws. This is a crucial component of contract drafting because your contract will be unenforceable if it includes illegal terms.
Ensure the contract follows industry regulations
You should ensure that you’re familiar with the rules and regulations of your specific industry. Many agreements require additional clauses that cover particular business sector guidelines or even personal situations that the contract may cover.
Offer the contract to the other party for acceptance
Once you have finished drafting the agreement, you must offer the deal to the other party so they can consider it. The other party can either accept the arrangement as it stands or make a counteroffer, leading to negotiations.
Negotiate the terms of the agreement
If they make a counteroffer to your initial draft, you can either accept it or provide your counteroffer. Exchanges of offers may occur back and forth until both parties are satisfied with the final arrangement. It’s critical to review the terms after each to ensure that you understand every change in the document.
Sign the document to finalize it
The final page of your document must be used for signatures and dates when you draft a contract. Once you reach an agreement and understand the terms, you both must sign and date the finalized document. Once you do this, the contract becomes legally binding.
The manual contract drafting process
Create an agreement from scratch
When relying on manual drafting, you have to gather all necessary information and consolidate it into a document. You must include details such as the names and companies involved, effective date, products and services you’re offering, and any terms and conditions.
Check to ensure that everything is legal and industry compliant
Next, you will want to do some research on contract laws and the regulations of your industry. This is crucial when manually creating an agreement because it will be invalid if it violates any laws or regulations.
Send the document via email for acceptance
Once your document is set, you can email it to the other party and wait for them to accept it or send back a counteroffer. If you haven’t heard back from the other party in a few days, it’s always good to send a follow-up email letting them know you’re still interested.
Meet with the other party in person to negotiate the terms
If the other party doesn’t agree to your arrangement as it stands, you will have to meet with them to negotiate terms and conditions. The negotiation process can be long, so be sure to schedule it at a time that works for both of your schedules.
Meet again to sign and finalize the agreement
After both sides are satisfied with the terms and have had time to review the document to make sure they understand its elements, you can then meet with them again to finalize it. Both parties must include their signature and the date on the last page of the document to be enforceable.
Advantages of manual contract drafting
Low start-up costs
When you manually draft contracts, you can utilize the software programs that you have already implemented. Services like Microsoft Word, Google Docs, and more are used by companies, saving the cost of investing in a new platform.
Little to no learning curve
Another advantage of utilizing pre-existing software to create agreements is that your team is already familiar with these platforms. This will save you time because you will not have to train your employees to use a new business solution.
Disadvantages of manual contract drafting
Wasted time making phone calls and checking emails
One of the most frustrating elements of manual contract creation is waiting for the other party to respond. Also, once they answer, you will have to coordinate your schedules, which is tricky because business professionals live busy lives.
Contract edits and revisions are easily lost
Many companies lack proper document organization, making it easy to lose previous versions. When you lose contract revisions, it’s difficult to point out what changed when the other side changes the agreement terms.
Increased legal and financial risk
Unless you hire an attorney to draft your agreement for you, there is a significant chance it will include legal fallacies or will be financially risky. Contract law is complicated, and besides being familiar with the legalities of agreements, there are also industry regulations, among other things to consider.
Prone to human error
Humans make mistakes, and contracts are no exception to this rule. Manual drafting leaves room for holes in the agreement that are easily overlooked when you’re trying to draft and manage multiple documents simultaneously.
The automated contract drafting process
Utilize a standardized template to create an agreement
Most contract drafting software includes different standardized templates to choose from. These templates are designed to fit your specific needs and are legally compliant, taking weight off your shoulders.
Use autofill features to input specific information
Once you choose a template to base your contract on, you will fill in the specifics. This includes names, companies, critical dates, offers, etc. Make sure that all of the information is correct before sending it for approval.
Notify the other party via the drafting software
Once you have perfected your draft, you can send it to the other party using your platform. They will then receive an email notification inviting them to collaborate with you. Most software services have features that will notify you when they have viewed your agreement.
Use real-time collaboration tools to negotiate terms
Negotiations are far more convenient using a contract drafting service. Instead of meeting in person, you can utilize real-time collaboration tools and make adjustments to the document remotely.
Virtually sign the agreement using eSignatures
eSignatures allow both parties to sign off on the agreement virtually and are as legally enforceable as a wet-ink signature. Once both parties submit their eSignatures, the contract is finalized.
Advantages of automated contract drafting
Financial savings
Since you will be able to create more beneficial deals, you can be sure that the agreement is to your advantage and won’t cost you in the long run. Additionally, a contracting platform will cut down your labor costs as you won’t need as extensive of a contract drafting team as you would using manual methods.
Efficiency
Drafting automation makes the process faster than ever before since virtually every stage is completed for you through the software. Since you won’t have to put as much work into creating agreements when you utilize automation tools, you can close more in a shorter period.
Risk mitigation
An automated system will give you insight into the risks of your agreement before you send it to the other party. That way, you can ensure that you aren’t entering a deal that may be detrimental in the long run.
Streamlined negotiation
Automation makes negotiation and collaboration simple by giving both parties the tools to make edits and adjustments to the document remotely. This ensures that more time can be spent on negotiating beneficial terms and less waiting for the other party to respond.
Disadvantages of automated contract drafting
Cost of software
The main reason why many company owners are hesitant to switch to automated contract drafting is the initial investment. Contract software can be pricey, but you will soon realize that it’ll quickly pay for itself by saving you from the costs of unoptimized agreements and financial penalties.
Training employees
Another reason why many businesses have not switched to automation is because they think training their staff is a waste of time. However, many platforms have easy-to-learn interfaces, plus you will make up the time by efficiently drafting contracts.
The benefits of drafting clearer contracts using automation software
Contract drafting and review are advantageous for agreements. However, manually drafting business contracts is not as efficient as automation and may lead to a document that’s ambiguous and riddled with issues. When you utilize automation for the drafting of commercial contracts and agreements, you can easily create concise agreements so that both parties can understand their rights and obligations. If you want to draft contracts that are advantageous to your business, it’s crucial to invest in a contract drafting service.
