Sometimes, a contract clause explains why a certain action is required or an obligation is included. Don’t. This weblog explains why.
Do not use wording such as in order to or for which reason or because. It is unusual for contract provisions (i.e., obligations) to contain explanations about why they are inserted. The purpose of a clause should be self-explanatory. In virtually all cases a contractual explanation is inevitable.
For example, many companies use forecasting provisions in their (ordinary course related) logistics agreements. Forecasting is often a staggered supply chain management process that enables the purchaser to finetune its supply of raw materials and the supplier to ascertain a well-planned sourcing of its half-products. Forecasting is especially important in case of large volumes of supplies or complex products. Effective supply chain management is crucial for a business’ competitiveness and a core functionality of enterprise applications such as SAP or Oracle. However, from a contractual point of view forecasting is usually a non-binding affair: no forecast is binding until a firm purchase order is submitted. It does not make sense to explain the purpose of forecasting in the contract but reflecting key elements of the process is useful.
How to. If the nature of certain provisions would require an explanation at all, the place for such factual background information is a whereas-clause in the preamble. Otherwise, the warranties are the place to ascertain the existence or absence of a fact. If an obligation is too vague, overly broad or does not provide testable guidance or criteria, consider steering the scope of the obligation by wording such as enabling Supplier to: such ‘explanation’ is rather a qualification or limitation of the obligation than an explanation.