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3 elements that make a good contract
Having the ability to create a well-constructed contract is an essential skill that legal professionals need to master. Here, the director of SoundLegal has outlined the vital elements such contracts must comprise in the modern marketplace.
Grace Robbie
Speaking on a recent episode of The Boutique Lawyer Show, Gemma Nugent, the director and principal lawyer for Perth-based legal practice SoundLegal, detailed the three essential components that lawyers must incorporate when crafting contracts for their clients. She reveals that these components ensure the contracts are transparent, easily understandable, and have enduring legal validity.
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Nugent highlighted that a contract must comprise essential legal components so it renders the capability to be upheld in a court of law.
“There are important legal elements that have to be there for the contract to be enforceable. People may want to go down to court and ask a judge to make a decision. So we need to have offer acceptance, consideration in particular,” she said.
The first element Nugent emphasises makes a sound contract is its ability to manage all parties’ expectations effectively.
“The first is, what does this contract do to manage the party’s expectations of each other? What’s the scope of the services or the works?” she said.
Ensuring the implementation of this objective is pivotal in aligning both parties with their respective roles and responsibilities, thereby mitigating the risk of potential misunderstandings that could give rise to disputes.
The essential questions that Nugent suggests that a contract should answer to set the foundation for a smooth legal relationship entail: “Who’s doing what by when? How much does it cost? When is that money getting paid?”
The second component that creates a well-crafted contract, Nugent stressed, is for the contract to not only foresee potential changes but also establish well-structured processes for effectively managing and adapting to these changes as they arise.
Nugent highlighted that this is essential due to how “projects and relationships are dynamic”, meaning that change is inevitable.
She also articulated the necessity of implementing this objective in industries with long-term partnerships and relationships. The capacity to adapt is not merely a preference but rather a requirement for ensuring the longevity of these relationships.
“In the industries I work in, supply relationships can go over 20-plus years. The asset life might be more than that, and people want relationships to go over that period of time,” she said.
The final and third element underscored by Nugent for lawyers to implement when drafting a contract is ensuring that processes that manage the relationship are integrated.
She stressed the importance of this aspect, especially in situations where a relationship may need to be terminated earlier than planned due to external circumstances and factors.
“If the relationship has to come to an early end, not even because the relationship breakdown, but because the project ends or, you know, iron ore price tanks or whatever, do we have an orderly wind-down process where the parties can get what they need from what’s been done so far and take it away?” she said.
Including this aspect within a contract, Nugent underscored, ensures that both parties are adequately compensated and able to move forward without unnecessary friction.
