As a business owner, contract administration is very important. You should take an interest in this stage because it will determine whether or not you enter into legally sound and commercially strategic arrangements. It will also reduce friction between you and the other contracting party and avoid hindering the scalability of your business. This article looks at how you can make your contract administration process more efficient.
Specifically, it will address:
- what contract administration is;
- tips for good contract administration;
- what estoppel is; and
- what a waiver is.
What is Contract Administration
Contract administration is the stage where you plan, prepare and execute your contract with the other party. This may be an individual or a business. Once you and the other party agree you want to form a contract, you will discuss and negotiate a range of requirements, including:
- price;
- services or goods you will provide; and
- performance expectations.
By closely paying attention to these contract details, you increase the chance of negotiating advantageous requirements for yourself in the contract.
A benefit of robust contract administration is establishing a clear relationship between you and the other party. This helps each party to know what they are accountable for and facilitates communication. Furthermore, it ensures you both meet the official requirements of the contract and can legally protect yourself. Ultimately, good contract administration will help:
- minimise the likelihood of disagreements down the track;
- strengthen business relationships; and
- promote commercial success.
Tips for Good Contract Administration
Transparency is crucial. Accordingly, you should outline each party’s obligations and terms in as much detail as possible to avoid problems with ambiguity. You should consider many aspects during contract administration, which will vary depending on the contract’s object. This article will discuss six best practices you can apply to any contract.
Continue reading this article below the form1. Scope and Deliverables
You should clearly define the expectations around scope and deliverables, so both parties understand their expectations. This requires defining:
- goods and services you are providing; and
- the number of products or amount of work.
You want to avoid scope creep, where the project work slowly extends beyond the original agreement.
2. Timeline
You should create a detailed timeline setting out contract start and end date, deadlines for deliverables and other important milestones throughout the contract’s life. This will help you and the other party stay on track.
3. Finances
Both parties must agree on clear financial terms to avoid contract disputes and ensure a positive ongoing working relationship. You should discuss the value of the contract, any payment intervals and the process to address the need for additional expenses.
4. Plan the Work
You should create a plan outlining the method of performance and reference to your personnel, employees or third-party personnel and their responsibilities when interacting with the other party’s personnel. You should also plan how you will measure success throughout the contract’s life. Furthermore, agree on a method for verifying each party fulfils their obligations.
5. Dispute Resolution
You should outline the most likely risks for you and the other contracting party and decide what steps to take. It is a good idea to allow flexibility for timelines and budgets to allow for unexpected delays or problems.
6. Draft and Negotiate
After creating a plan, use the information to draft the contract. Remember to detail the responsibilities and obligations of both parties. Arrange a time to discuss the draft with the other party to the contract to give each party a chance to raise issues and smooth out the agreement.
What is Estoppel?
An estoppel is a legal defence against someone pulling out of performing their agreed service or goods or doing something inconsistent with their promise or representation. Additionally, this legal defence extends to representations or promises as to future conduct too.
For example, in Walton Stores Ltd v Maher [1988], a builder agreed to demolish a building to erect a new one based on the understanding that the other party would lease the new building to Walton Stores.
The builder started the project before signing a lease relying upon Walton’s representations. Waltons backed out of the agreement after the builder tore down the old building. Despite the absence of a contract, the High Court of Australia estopped Waltons from denying the contract. They held that Waltons’ unfair dealings resulted in the builder suffering detriment.
To establish estoppel you must prove the following elements:
- the other contracting party induced an assumption on your part;
- you relied on that assumption to your detriment;
- your reliance on the assumption was reasonable; and
- the other party acted unfairly toward you.
What is a Waiver?
One party to a contract may voluntarily relinquish a claim, privilege or right. This is known as a waiver. The waiver may be a separate document requiring the’ waiving’ party to sign a waiver form. Alternatively, you may include a waiver clause in the contract. Signing a waiver or surrendering a claim, privilege or right is generally a positive act. However, deliberate failure to take specific actions may trigger a waiver.
An example of a waiver is when hospitality venues require patrons to sign a COVID liability waiver. Patrons who sign the waiver form surrender the right to hold the venue liable if they contract the virus during their time at the venue.
You should think about how you can use waivers to your advantage commercially. Waivers can limit a business’s liability for certain risks associated with goods or services. To ensure a robust waiver agreement, you should put any waiver in writing. This should include a comprehensive explanation of the risks associated with the service or good and stipulate that the customer agrees to assume such risks. In addition, it should state that you assume no liability for that risk arising.
Before buying a business, it is important to undertake due diligence, to verify the information supplied by the seller. This guide will walk you through the due diligence process.
Key Takeaways
In summary, contract administration is a very important part of the contract process. Without proper contract administration, your business may open itself to commercial and legal risks. When drafting your contract, also consider the role of estoppel and waivers. Generally, it may be beneficial for your business to consider allowing a contract lawyer to handle such matters.
If you need help with contract administration, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An estoppel is a legal defence against someone pulling out of performing their agreed service or goods or doing something inconsistent with their promise or representation. This legal defence extends to representations or promises as to future conduct too.
A waiver is where one party to a contract voluntarily relinquishes a claim, privilege or right. This may be part of the contract or a separate document.
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