You made it through the negotiation process, your contract is signed and now ready to be put into action. As each party carries out their obligations, what if something changes? Life rarely goes as planned, so it is important to have a roadmap in the event that circumstances are altered. Contracts are generally viewed as rigid and stagnant agreements; however, that is not necessarily the case. While contracts create legally binding agreements, modifications and adjustments are accessible through amendments. In fact, the creation process of an amendment is just as important as the creation of the original document.
Consider the U.S. Constitution for example. Because this document is so impactful to all citizen’s everyday lives, it was bound to require revisions as societal norms shifted. Let this sink in, without the ability to amend the Constitution, we would not have been able to eradicate slavery, allow women to vote, or protect free speech. Change is inevitable and often necessary for improvement and growth. Having the ability to revise your business agreements is equally as important in order to ensure success.
An amendment can be as simple as a deletion, alteration, or addition to the original document. This change is made after the contract has been signed and put into action. In the event that more extensive corrections need to be made, it may be beneficial to create an amendment and restatement as opposed to a simple amendment. A simple amendment is a short document that contains only the terms that have been changed. An amended and restated contract is different in the sense that it is a consolidated version of the original amendment paired with the amended terms in a completely new document which replaces the old one.
Amendments follow the same basic document creation process that contracts follow because parties must be in agreement, therefore, they might go through multiple drafts to reach a final consensus. Included in the original contract will be a notice, which states the guidelines to be followed when creating an amendment (i.e., who to contact, what channel to reach out through, any specific formats etc.).
Let’s take it a step further. Say your business is going through a corporate restructuring, or merges with another company. It can be overwhelming to have numerous contracts changed in a short period of time. In addition to both of those scenarios, contracts can be modified as an assignment or novation. This is relevant when a party is replaced by a new party. In an assignment, the new party takes on the old party’s rights and responsibilities. If a contract is novated, the new party will be responsible for the previous responsibilities of the old party, taking over their original contract.
In the instance that a contract comes to an end, it is either negotiated initially wherein it expires (expiry), or it is terminated before it is set to end. There are two different amendments for termination: termination for cause, and termination without cause. This is especially important to note if a contract isn’t evergreen, with no fixed term or expiration date. Termination for cause is just like it sounds, one party violated the agreement. Termination without cause is also explanatory, neither party specifically violated the terms of the agreement, but one party decided they were no longer a fit for the contract.
If your organization makes and receives multiple amendments on a daily basis, you need to make sure they are rolling up for prevailing terms. This means you can always be completely certain what the most relevant terms are at all times. This is especially important during a crisis, when you have no time to waste manually reviewing each contract and all of its amendments.
To learn how Exari’s enterprise contract lifecycle management platform can help you manage your entire contract portfolio and all related amendments and documents, click here to request a demo now.