The drafter must not only fully represent the desires of the parties but also anticipate the practical execution of the contract. Then, the drafter will have grounds to review any potential risks to minimize these risks and maximize benefits for the client. In the previous article, we discussed the four steps drafters can apply: i) Find out the details to be drafted; ii) Identify the type of drafted contract; iii) Identify the object of the contract; iv) Analyze the legal regulations governing the contract. In this article, we will continue to outline the remaining steps to draft a contract that parties may refer to.
1. Identify primary interests
Each party entering a transaction or contract relationship aims for certain benefits. Depending on the parties’ positions within the contract relationship, their targeted benefits differ. From the initial step, in the information exchange process with the client, the drafter must compile the benefits the client aims for, and identify primary and secondary interests, and ways in which interests are met. The contract should protect the primary interests and, in some cases, may forgo one or some secondary interests to ensure a balance of interests in the negotiation and signing of the contract.
For example, in a sales contract, the buyer’s primary interest is that the goods must meet the quantity, type, and quality required by the buyer. To ensure this interest, the drafter should include the following in the contract: i) payment to be made after receiving the goods; ii) the exchange or return of goods if they do not meet the specified type or quality; iii) the delivery of additional goods if the quantity is not met; iv) warranty of the goods; v) penalties for the seller such as compensation for damages or fines if the goods do not meet the quantity, type, or quality.
2. Identify risks
During the drafting process, the drafter needs to identify potential risks that could arise during and after the execution of the contract and list possible risks to anticipate risk mitigation methods. Some risks include the contracting party not having sufficient authority; changes in the contract’s execution context, legal basis, and business environment; changes concerning the direct rights/obligations, related rights/obligations; one or more parties violating the contract, unilaterally terminating the contract; etc.
For each type of contract, risks often stem from different factors. For example, in a goods sales contract, risks might arise from goods being transported across regions/territories, changes in prices, goods preservation, maintenance, warranty, etc. In a joint venture or investment partnership contract, risks often arise from defining the scope of cooperation, the contributions of the parties, project stages, investment plans, cash flows, and structuring related transactions, the type of assets contributed, project outcomes, and sharing of profits and risks in the business, etc.
When anticipating risks, the drafter should specify content to reduce and prevent risks. For example, for risks related to the contracting entity, the drafter needs to thoroughly check the authority of the contracting parties. For risks associated with force majeure or fundamental change of circumstances, the drafter may draft these contents into the contract.
3. Draft the contract
After understanding the client’s requirements and determining the contract structure, the drafter begins to draft the detailed clauses of the contract. The drafter should group the clauses into i) main clauses – reflecting the main and specific content, ii) common clauses – content needed in most contracts, iii) other clauses – clauses typically included in some contracts to exclude certain misunderstandings that could lead to disputes.
4. Review the language and finalize the contract
After completing the contract drafting, the drafter should read through the contract at least twice. For the first read-through, the drafter needs to ensure the contract matches the client’s desires and legal regulations. For the second read-through, the drafter can check for formatting errors such as spelling, spacing, paragraph breaks, expression, etc. After finalizing the contract, the drafter sends it to the client and waits for their feedback. If the client requests adjustments, the drafter continues to revise and supplement the contract in accordance with the client’s requests and legal regulations.
This article, “Steps to draft a contract” aims to be useful to you.
Sincerely,
