Contract drafting best practices: master contract writing

Want to create effective formal contracts? This comprehensive guide covers everything you need to master contract writing, from understanding contract fundamentals and types to drafting steps, ensuring legal compliance, and implementing best practices for contracts in writing that protect your business interests.

What is a contract?

We often use contracts in our day-to-day lives and in business. A contract is an agreement between two parties that typically involves the transfer of services, goods or money or a future promise to do so. It’s essentially an agreement between two parties to fulfil a promise.

According to the Thomson Reuters Practical Law Guide, a legally binding contract should include an offer, an intent to create legal relations, acceptance and consideration. 

So what are the common types of contracts we encounter?

Contracts are frequently used in business. There are many types of contracts, including standard contracts like non-disclosure agreements, fixed price contracts, cost-plus contracts, and unit price contracts.

Most businesses have encountered a non-disclosure agreement, which protects intellectual and confidential information from competitors. Many organisations have also used a sales agreement defining the sales requirements between a buyer and seller.

Most employees will have been issued with and signed an employment contract that sets out what's required of them and their employer. Employment contracts are common, simple agreements. Employment contracts define the relationship between an employer and an employee. They will outline an employee's rights and responsibilities, along with financial expectations and working hours.

A fixed-price contract establishes the complete price of a project or goods with a predetermined value, while a cost-plus contract is structured to reimburse the contractor for the time and materials incurred. Another type of contract is a unit-price contract, which itemises work or services delivered into units.

How does a contract form?

The formation of contract requires specific elements to create a legally binding agreement. Understanding these conditions for a contract is essential for both businesses and individuals.

Offer

An offer is a proposal expressing willingness to enter into an agreement on specific terms. The language must be precise so clients understand exactly what's being proposed. It must be communicated clearly with definite terms that create a binding contract when accepted.

Acceptance

Acceptance occurs when the offeree agrees to the exact terms without modifications. Any changes create a counteroffer rather than acceptance. Acceptance must be communicated as silence generally cannot constitute acceptance unless previously agreed.

Consideration

Consideration is what each party exchanges and is the value that makes the agreement legally enforceable. Without consideration, a promise is merely a gift. This ensures both parties receive something of value in the contract formation process.

Intention and capacity

Parties must intend to create legal relations and have the legal capacity to contract. Capacity means parties understand what they're agreeing to and have the legal authority to do so, protecting those who don't understand the contract language.

Why are contracts important?

Creating a written contract is best because it ensures all parties know their obligations and how to fulfil them.

Using contract templates can be a beneficial way to start drafting what you need. A template gives you a basic framework to complete and often contains boilerplate contract clauses that can be updated. Docusign has created a template library for many commonly used contract forms to help speed up the sending process and reduce your risk of errors.

Using contract management software can help you save time when drafting contracts.

What should be included in a contract?

Identify key parties: Identify all parties involved in the agreement and ensure they have the capacity to understand the terms and conditions and the authority to sign off if working within an organisation. The parties are legal entities recognised by law, such as companies, limited liability partnerships and individuals at least 18 years of age. The contract should list all businesses or persons involved in the contract.

Contract components: Decide upon the type of contract you need and plan all of its components, such as the agreement terms and conditions.

Introduction: Include basic information in your introduction, including the legal and/or business names of all the parties involved.

Dates: Include the dates for the terms of the contract and, if required, dates of warranties or payment instalments.

Offer: Create a clear description of the goods, services, or money to be exchanged, the offer or promise of the agreement.

Consideration: Create the terms of the agreement, which should include a clear description of the value each party will bring to the contract. This may include details such as how and when the services or goods will be delivered, and will need to be agreed upon by all parties. It may consist of termination rights or other legal rights of each party.

Acceptance and signatures: There should be an area for all parties to clearly sign the contract to express their acceptance of the offer. Sometimes, your contract may have a couple of rounds of contract negotiation before all parties agree to sign. After the offer has been received, it can still be revoked, altered, or terminated at any time before acceptance.

Contract execution: When your contract is drafted, you may wish to send it to legal experts for review. Then, you can execute it by sending it for electronic signature and approval by all parties.

What are the common mistakes when it comes to contracts?

Contracts often include vague terms and conditions, which can be hard to enforce. This is where your contract can benefit from legal review.

Other problems occur when old contracts contain out-of-date legal clauses that haven't been updated or renewed. Some specific elements of a contract make it legally binding, and it's best to get a legal expert to review your agreement. However, legal teams and departments can create templates with pre-approved clauses to develop a smoother contract creation process.

How create a draft contract?

There are some key steps to follow when creating a draft contract:

How do you write a contract?

1. Start with a clear outline of your agreement terms before you begin putting your contract in writing.

2. The scope of work, payment terms, and delivery schedules should be defined in the contract to avoid misunderstandings later.

3. Ensure you have created the contract terms and that the offer of service or goods is clear. You will also want to include specific details about responsibilities, timelines and methods to resolve a dispute if one were to arise.

4. Keep language simple and direct.

5. Using contract templates can streamline your drafting process.

   DocuSign's template library offers pre-approved formats for common business agreements, from service provider contracts to confidentiality clauses.

6. Remember to review the first version carefully before sharing with other parties. Pay special attention to insurance requirements, payment terms and contract duration to ensure your agreement serves its intended purpose.

Do you always need a solicitor to write a contract?

Legal teams can be expensive, and some businesses may not always want to hire a lawyer for contract drafting. Not all contracts need to be written by a lawyer or solicitor; many business contracts can be used as standard and created using a template, such as non-disclosure agreements, and some employment contracts.

Find out more about using templates in Docusign when creating contracts. Some businesses will get a lawyer or solicitor to review the contract for peace of mind, but it isn't always necessary. Docusign for legal teams can help legal departments automate the entire end-to-end contract process for efficiency.

Getting a legal contract signed

Electronic signature software makes signing a contract simple. You can use Docusign eSignature to create new legal contracts and use contract templates that are ready to complete and send for signing. Using Docusign contract management software can simplify the whole process.

Contract lifecycle management software can help you prepare, sign, store and act on your business agreements. The contract lifecycle includes generation, negotiation, storage, analysis, and signing.

Types of contract

Many types of contracts could benefit from contract lifecycle management. These include sales and procurement contracts and employment management contracts. When onboarding new clients, small businesses often use a non-disclosure agreement.

Other agreement types frequently used in organisations include retainer agreements, unit price contracts, time and materials contracts and employment contracts:

• Retainer agreement: These are often used to secure services for a period of time. There is usually an agreed fee paid monthly for consultants or professionals offering a particular service, like a lawyer or a marketing agency.

• Unit price contracts: A unit price contract is an agreement in which payment is made in a fixed amount per unit of work.

• Time and materials contracts: Time and materials contracts allow service providers to provide an invoice to clients based on the time spent working for them and any costs or materials incurred as part of the project. The cost may be based on an hourly or daily rate.

• Employment contracts: a legally binding agreement between an employer and an employee.

• Property contracts: These are contracts where a buyer agrees to purchase a property from a seller.

Employment contract - what should be included?

Employee contracts are essential both for the employee and the organisation employing them. For companies that want to onboard several new employees, it helps to automate parts of the process. For an employee starting a new job, it is crucial to have something in place that outlines their rights and responsibilities. The legal parts of an employment contract are terms, and the contract should state which parts are legally binding. An employment contract might include a start date, job title, description, salary and working hours. It may also include responsibilities, benefits and disciplinary policies.

An independent contractor's agreement differs from employment contracts because it is usually contract-based or short-term. The contractor is unlikely to receive employee benefits, but instead, the contract will outline the parties, the scope of work, and payment terms. There may also be clauses covering confidentiality and intellectual property. Discover more about digitising your hiring and onboarding.

What are the best practices for contracting?

Without a clear understanding of the contract management process, many businesses have trouble identifying areas in their internal processes that are ripe for improvement, where time can be saved and errors avoided. It's best practice to ensure that risks are managed effectively. For instance, contract lifecycle management (CLM) software can help you automate document generation and automatically pull in new information like names, addresses, product pricing or terms and conditions. It can also help during the approval routing and negotiation process to automatically route to all interested parties for review and revision. Modern CLM solutions have features like contract analytics and artificial intelligence (AI) to help instantly identify specific clauses and terms embedded in existing agreements' language.

FAQ about contract writing

How to make a contract legally binding?

To create a legally binding contract in the UK, ensure it contains an offer, acceptance, consideration, clear terms, and intention to create legal relations. Both parties must sign. Docusign eSignature provides security and compliance with UK Electronic Communication Act requirements while streamlining the process.

Does a business contract need to be in writing?

Most business contracts don't legally require written documentation, but written agreements provide clarity and protection. Docusign CLM helps businesses create, manage and store written contracts efficiently, reducing risks and providing a clear audit trail.

What is the best contract writing format?

The most effective format includes clear headings, numbered clauses, defined terms, and plain language. Docusign offers templates with pre-approved clauses and standardised formatting to help create professional, consistent contracts.

Which contracts are required to be in writing in the UK?

Under UK law, certain contracts must be in writing: land transfers, powers of attorney, deeds, and security documents. Docusign provides solutions for electronically signing and witnessing these documents, including HMLR deeds, in compliance with UK regulations.

What contract writing software can help small businesses?

DocuSign CLM streamlines the entire contract lifecycle. It offers templates, automated workflows, and AI-powered analytics that reduce drafting time by 80% and completion time by 50%. The software integrates with tools like Salesforce.

Are there free contract writing examples or courses?

Docusign offers free contract writing examples through its template library, covering common agreements like NDAs and sales contracts. While not offering free contract writing courses directly, Docusign provides resources on best practices.

DISCLAIMER: The information in this article is for general information purposes only and is not intended to serve as legal advice. Laws governing the subject matter may change quickly, so Docusign cannot guarantee that all the information on this site is current or correct. Should you have specific legal questions about any of the information on this site, consult a licensed attorney in your area.