In this weblog, I will discuss the main actions to be taken setting up a contract and deciding upon the main components in the contract structure. In the immediately following blog, I will further explain their meaning.
Setting up a contract and the main contract components in the contract structure implies a few types of actions:
- Identification of subject matters. Identifying and grouping the transaction or contract elements required to be addressed. To a very large extent, the identification of the contract elements is driven by the nature of the agreement at hand and common practice. (In other words, a contract drafter typically starts with a model contract.)
- Splitting up. Subdividing the contract elements into articles and contract sections. This requires a classification or determination where any given provision should be placed.
- Use of definitions. Distracting concepts for use as definition (and substitution for defined terms in the contract clauses). In complex or large transactions, this also entails an evaluation as to whether a hierarchical structuring of defined terms and definitions is desirable.
- Classification. Recitals, definitions, warranties and conditions have their own place in the contract.
- Prioritisation and logical ordering. Once the contract articles are defined, they should be placed in the right order.
Identification of subject matters. For the identification of subject matters, a drafter should consider whether all elements need to be addressed in one and the same contract or instead be divided over two or more documents. For example, a sales agreement may well contain a relatively insignificant license provision, but if intellectual property licensing is more than ‘relatively insignificant’, a division into two contracts would be desirable. Similarly, a joint development agreement often entails the establishment of a steering group; but if such body would also be regulated as regards its power and authority to act and modify the scope of R&D or commit the partners financially, it may be desirable to split the JVA into a joint venture (partnership-like) agreement on the one hand and a mutual services agreement with IP clauses on the other hand. Contract elements are grouped in different transaction document if the relative importance of those elements would otherwise result in an overly mixed document. To a large extent, custom dictates what clauses are included in the standard kinds of contract.
