How to Draft a Compliant Contract Using Automation

Contract drafting is tedious and uninteresting. There's so much legal jargon to sift through, and the worry of whether you've included the rights detail or if it's enforceable.

However, this shouldn’t discourage you from writing a contract.

This article will explain the essential terms and show how to create a contract easily. If you also want a faster process that doesn’t require writing from scratch, this article will show you what to do.

But first, let's set the stage.

Can Anyone Write a Contract?

A contract is essentially a legal agreement between two or more parties. This means, whenever you agree with someone to do anything, you've essentially created a contract. 

However, to ensure your contract is legally enforceable, it's not always advisable to draft it yourself. So, when should you handle it, and when should you leave it to a professional?

Here's the advice from Luke Smith, Attorney with 7 years of experience and founder of LawSmith PLLC:

“While anyone can draft a contract, whether anyone should draft a particular contract depends on the complexity of the transaction, the likelihood of litigation, stakes, and risk tolerance.

Non-attorneys often draft low-stakes contracts, such as buying or selling used vehicles. While an attorney might draft a clearer, more binding contract with less risk, it can be costly for simple transactions.

On the other hand, there are situations where people regret drafting their contracts. For instance, a small business owner might pay an injured employee or contractor a lump sum in exchange for a release from all claims, only to discover that workers' compensation claims require court approval. This transaction has a high likelihood of litigation.”

In short, consider the complexity of the transaction before drafting a contract yourself. For low-stakes, low-risk agreements, doing it yourself may be fine. Otherwise, it's wise to involve a legal professional.

Common Elements to Consider When Drafting Contracts

Use the elements listed in this section to structure your contract. 

Title

Your contract title should be a bold, brief, descriptive name that indicates the nature or purpose of the agreement. Examples of contract titles are "Sales Agreement" and "Employment Contract".

Parties

These are the primary individuals, businesses, government entities, or representatives that enter into, are legally bound by, and have obligations and rights under the contract. These parties are typically referred to as:

• Party A (First Party): Often the party offering the goods, services, or agreement terms.
• Party B (Second Party): Often the party accepting the goods, services, or agreement terms.

In more complex contracts, there may be additional parties involved, which can be referred to as:

• Third Parties: Individuals or entities not directly involved in the contract but who may have rights or obligations due to the contract’s terms. Examples include beneficiaries in a trust agreement or affiliates.
• Successors, Assigns, Power of Attorney Holder: Parties that may step into the shoes of the original parties due to assignment or succession. An example is a company that buys out one of the original contracting parties. 

Definitions

Including this element isn’t compulsory, but it ensures that parties understand the ambiguous language used, preventing misunderstandings and disputes. For instance, in a lease agreement, specifying what constitutes "premises" helps landlords and tenants understand the parts of the property the agreement includes. Another example is the Docupilot’s Non-disclosure agreement defining what confidential information entails:

Duration

Most contracts, like service agreements, are only effective for a fixed period. To ensure clarity, specify the start and end dates in the duration section, also known as the term. This Docupilot room lease agreement template shows a simple way to word the duration section:

However, contracts like employment contracts, last indefinitely and may not include an end date, only termination conditions.

Deliverables

This section ensures a clear-cut understanding of the services or goods one party agrees to provide another to fulfil their contractual obligations. In a product-based contract, such as a product sale contract or lease agreement, this section should provide details such as product description, quantity, quality, packaging, and location, depending on the product type.

Service-based agreements, such as employment or influencer marketing contracts should cover the duties and scope of work you offer your client. For example, this consultancy service contract expressly states the expected hired consultant duties:

Recital

The contract recital is a section at the beginning of a contract that states the purpose of the contract and the intentions of the parties involved in the agreement. It often begins with "Whereas" to introduce the following detailed terms and conditions. While they’re not legally binding, they can provide context for interpreting the agreement in the event of a dispute. 

Consideration

This element details the value exchanged between the parties in a contract, typically involving a monetary payment for goods or services. Also called  "Payment or Payment Terms", the  Consideration section outlines the payment amount, currency, method, schedule, and due dates. It also addresses penalties for late payments, invoice requirements, and any conditions that must be fulfilled before payment, such as the satisfactory completion of work or goods delivery. 

For example, this in this sales contract template, the “Purchase Price and Terms” section describes the product amount, means of payment, who pays the shipping fee, the cost, the period for invoice delivery, the expected payment date, and the penalty for late payment. 

Take a cue from it and adapt it to your contract type when drafting. 

Indemnification

An indemnification clause, also called a hold harmless provision, shifts contract risks from one party to another. This clause protects the non-offending party from financial loss or legal consequences caused by the other party’s actions or failures. 

For example, in the consultancy contract, the company requires the consultant to hold it harmless from claims arising from the consultant’s gross negligence and willful misconduct, as well as from all government levies.

While indemnification clauses often favor the drafter, especially in contracts of adhesion, it’s crucial to allow negotiations and thorough review by the other party to ensure fairness.

Force majeure

Uncontrollable situations could hinder the completion of contractual obligations just as the 2020 pandemic halted businesses. A force majeure clause covers such situations.

The clause outlines what constitutes a force majeure event and the impact on performance, such as suspension or extension of deadlines. While not all force majeure events can be covered in a contract, common examples include war, natural disasters, industrial accidents, and government actions.

Dispute resolution

While parties hope that all contracts proceed smoothly, there are no guarantees, making it crucial to include dispute resolution clauses. 

Disputes can be resolved in three ways including:

1.  Litigation: Disputes are resolved in court and while it’s formal and legally binding, it’s often slow and costly.
2. Arbitration: The parties appoint a third party, the arbitrator, to resolve disputes. The arbitrator’s decision is usually final and enforceable in court. Although this method is faster than litigation, it may still lead to court involvement.
3.  Mediation: A third party, the mediator, facilitates negotiation between the parties to reach a voluntary resolution. Unlike arbitration, mediation is informal and non-binding, making it more suitable for individuals than businesses.

Depending on the anticipated dispute’s complexity, your chosen dispute resolution method can be one, a combination of two, or all three options. For example, the consultant service agreement used only the mediation method—by creating a committee of commissions contract manager, and executive director:

Confidentiality

Use a confidentiality clause (non-disclosure agreement) when your contract involves sensitive or proprietary information such as trade secrets, business strategies, or personal data. This clause is often found in employment contracts, partnership agreements, acquisition and merger deals, and licensing agreements. It can also be a standalone contract in cases requiring strict confidentiality as shown in this Docupilot template:

Governing law

This section requires you to state which jurisdiction’s laws govern the contract. It’s especially important in cross-border transactions to avoid legal complications. Consider choosing personal or your company’s location governing law to facilitate easier enforcement. Check out how to word it from this Docupilot lease agreement contract. 

Termination

This outlines the conditions under which either party can end the contract before expiration. These conditions generally fall into two categories:

• Grounds for Termination: These are specific conditions or events that automatically trigger the right to terminate the contract. For example, when one party fails to fulfill their obligation or declares bankruptcy, the other party is forced to terminate the contract. 
• Midway or Early Termination: This occurs when one party chooses to end the contract before its natural conclusion, often requiring adherence to specific notice periods or conditions to avoid a breach as seen in the consultancy service agreement:

The termination clause could also address conditions for contract renewal, penalties and obligations that arise upon termination, such as adherence to a non-compete agreement. 

Date and signature

This includes the date the parties sign the contract which can be the same as the effective date or different, depending on the terms of the contract. Also, each party involved in the contract must sign to indicate their agreement to the terms and their intent to be legally bound by the contract. 

How to Write a Contract Between Two Parties: 3 Easy Steps

To write a contract between two parties, identify the parties and draft it following these easy steps: 

Step 1: Introduction (title, preamble, and recital) 

This sets the stage for the agreement by defining the parties involved and the contract’s reason. It includes three parts as identified in this sales contract template. 

It starts with the title, then the preamble—the first paragraph, indicating the contract date, party names, and addresses (You can include parties passport number and I.D number if needful). And the recitals, stating the contract purpose (as earlier said in the description of the recital above, you may or may not include this paragraph). 

Step 2: Body (terms, conditions, and clauses) 

After recitals is the body—the core part of the contract. You can start with term definition where necessary but most importantly, cover all important clauses such as deliverables, payment terms, duration, and termination.

Tailor the headings in this step to specific contract types. For example, the “purchase price” heading in the sales contract template could be “compensation” or “payment” in a service agreement. 

Also, consider adding clauses or conditions specific to your contract type. For example, “shipment” and “risk of loss and title” are specific to sales agreements, whereas benefit clauses are typical of employment contracts.

Step 3: Conclusion (signature) 

This final step formalises the contract by including signature, name, and date blocks.

It may also include dates and spaces for witnesses or notaries, depending on the nature of the contract. This ensures that the contract is complete, executable, and legally binding.

Overall, regardless of the contract format, these three key parts are universally present.

Don’t Want to Draft From Scratch? Try These Faster Ways 

What’s the point of manually drafting your contract from scratch when there are faster alternatives? Try them: 

Use templates

The document generation tool in Docupilot offers a library of editable templates for various use cases like the ones referenced in some parts of the “common elements of contract draft” section. 

To use them, sign up to Docupilot and click “Create Template” at the upper left of the homepage.

Click “Pick From Gallery” and scroll to find the template that meets your needs. 

If you pick this rental lease template, for example, you can change the document format from docx to pdf, and rename the template and description. 

Click “Create” to preview the template and download it. 

After downloading, open it in Microsoft Word and edit it to reflect your intention and need. 

Use AI contract generator

With Docupilot AI contract generator, you can generate any type of contract with a prompt. To use it, click “Try AI template Builder” in the sidebar. 

Describe the type of contract you want to generate. Here is the result for the prompt “Write a sales agreement”

However, if you give it a more precise prompt like this:

“Generate a sales agreement template. The template should include the following sections: Introduction, Recitals, Purchase Price, Payment Terms, Delivery and Risk of Loss, Warranties, Inspection and Acceptance, Indemnity, Termination, Governing Law, and Signatures. Please provide clear headings and concise language for each section”

You’d have something this specific. 

Pro tip: Feed it a more specific and detailed description. 

Next, copy the AI template source code.

Generate a new document and click “source” 

Paste your code. 

Now, you can edit the contract using the rich formatting tool and download it afterward.

Automate repeat draft

You’ll find contract automation tools useful if you often draft contracts with repetitive content except for changes in a few places.

To start, import your template or continue with your edited AI-generated template and identify the dynamic parts of the contract.

Click the curly bracket to find the merge fields types.

You can learn more about the rest here but for now, let's apply the easiest and commonest one—token. 

To insert tokens, write your variable e.g. “address” in the field name, place your cursor where you want to apply it, and click insert. 

If you’re using the AI template, you’ll have the tokens already inserted.

Now click “test”. 

You’ll have a form with your tokens and fields. Fill in real data and click “Test” below.

The data will replace the tokens and download the custom contract automatically.

To repeat this process for multiple contracts with custom data, use the bulk merge feature and integrate your data sources like Excel, forms, and CRMs with Docupilot using Make or Zapier integration. 

This way, new data added to your sources will trigger Docupilot to generate custom contracts. 

Tips and Checklist for Drafting a Good Contract

Use these tips to ensure your contract draft protects your interest and is enforceable:

1. Be clear and precise

Opt for clear, precise, and direct language. Using ambiguous and vague language demotivates contract readers. For example, instead of using terms like “promptly,” which is subject to different meanings, specify a time frame such as “within 48 hours.”

This approach reduces the risk of misinterpretation and potential disputes, promoting a strong relationship that ensures the success of your transaction. If ambiguous terms are necessary, clearly define them in the definition section of the contract.

2. Make it concise

 Bloated contracts intimidate and discourage readers. And the truth is, most lengthy contracts include unnecessary details. Hence, review your contracts and chop off irrelevancies before sharing them. Achieve concision by:

• Avoiding repeated phrases
• Using short sentences
• Merging related sections e.g payment + payment terms
• Eliminating irrelevant section

Addressing these issues ensures a more concise and visually appealing contract. 

3. Make it comprehensive

Avoid sacrificing essential content for brevity. Thin contracts may lack critical clauses and sufficient context, making them hard to understand and enforce. For example, in the Pacific Hills Corp. v. Duggan case, unclear payment schedules and scope of work led to disputes. Ensure your contract includes clauses and context to aid clarity, protect your rights, and reduce the risk of breaches and litigation.

4. Use active voice 

Active voice sentences focus on the subject doing the action, making them more direct. For instance, "The contractor shall deliver the goods" is preferable to "The goods shall be delivered by the contractor." This helps eliminate ambiguity regarding responsibilities. A good rule of thumb is to follow the “subject + verb + object” structure. 

5. Avoid spelling and grammar errors 

Misspelling names in a contract can lead to disputes, as the person with the incorrect name may not be bound. To avoid such issues, meticulously proofread the document to ensure accuracy. Also, use contract automation tools to automatically insert relevant data instead of manual entry or copying and pasting.

6. Negotiate and review

Be open to negotiating the terms and conditions until both parties are satisfied. After drafting the contract, don’t rush to sign it; allow adequate time for the other party to review, understand, and agree to all terms. This ensures that ambiguities are resolved and both parties are clear on the agreement.

7. Get legal advice

If you’re not a legal expert, you might not fully grasp the relevant laws, regulations, or implications of specific contract clauses. Therefore, whether you're drafting a contract from scratch, using a template, or employing AI, it's wise to have a lawyer review high-risk contracts as previously advised by Luke Smith. Since you’ve drafted the contract, you might be able to save money by opting for a review-only service. 

Suggested read:

Essential Elements of Valid Contracts

Uncover the key components that make a contract legally binding, ensuring your agreements are enforceable and protect your interest

Use Docupilot for Effortless Contract Drafting Between Two Parties

Understanding essential contract elements and following the outlined steps makes drafting less daunting. However, you can skip the process with contract templates and AI contract generators while using Bulk Create to automate repetitive drafts, ensuring faster and more error-free contract drafts.

Remember to seek professional help for complex and high-stakes transactions.

Sign up to Docupilot now to claim your 14-day free access and experience the ease of creating professional contracts.