In contract management, there are several important legal concepts and terms that every contract manager should become familiar with. Contract managers come from many different backgrounds. Some have a strong legal foundation, while others have extensive knowledge and training areas like procurement and administration. Whatever the role or background, it’s critical to attain a basis in legal terminology and in the common legal concepts found during contract lifecycle management.
Contract management involves a whole host of contributors from various departments to effectively build, review, and execute contracts. Managing contracts throughout the entirety of their lifecycles requires support from specific individuals and stakeholders that involves effective collaboration and communication. In this way, attaining an understanding of some basic legal concepts found in contract management will make it easier for everyone to be on the same page when collaborating on the same legal agreement.
Contract Management Legal Terms Commonly Found During The Contract Lifecycle
The following four legal terms define basic actions and/or steps that contract stakeholders are required to take in order to produce an acceptable and legally-binding contract.
- Offer: the proposal from one party to another to enter into a legal agreement. An offer must clearly demonstrate a willingness to move things past simply opening-up negotiations. Offers can be either written or verbal. Typically, an offer is easily identifiable. However, issues can stem from when the offeror asserts that they did not intend to extend an offer and create a legal obligation. In essence, a legal offer must be clearly stated in a manner that would lead the other party to expect a legally-binding contract to result from acceptance.
- Acceptance: the offeree’s agreement to enter into the offered terms. Some offers require specific actions that validate the offeree’s acceptance, where the acceptance must meet certain criteria in order to be deemed effective. Furthermore, an acceptance is required to be communicated directly to the offering party.
- Consideration: contracts are only enforceable if they include an exchange between involved parties. In the exchange, the parties will make promises to uphold specific obligations. The term “consideration” commonly involves performance metrics or a monetary value.
- Agreement vs. Contract: while these terms are commonly used interchangeably, there is a significant distinction. An agreement refers to a promise that is not legally enforceable, while a contract refers to a legally enforceable agreement.
Contract Management Legal Terms Associated with Enforceability of Contracts
Upon entering a contract, both parties’ main goal is to benefit is some way from the agreement. However, there will always be circumstances and times where one of the parties does not hold up their end of the bargain.
Now, we will discuss three legal terms that are commonly encountered when attempting to enforce contracts.
- Breach: the party’s failure to abide by the defined requirements of a contract. A breach of contract can lead to legal action.
- Statute of Frauds: having its foundation in an historic English statute, the term refers to laws that require specific contract types to be written. Being one of the most fundamental legal concepts, it’s necessary for every individual in contract lifecycle management to be familiar with the Statute of Frauds. Varying state-by-state, these laws can deem a contract as invalid and unenforceable if there is failed compliance to the Statute of Frauds.
- Capacity: this term refers to legal competence. To effectively enforce a contract, contractual parties must be legally competent in order to enter a contract. For example, competence can be impeded by mental impairment or age. To add, when a contract is signed by one individual on behalf of another, challenges of capacity can occur.
Contract Management Legal Terms Associated with Liability and Responsibility
Contract managers are required to oversee and regularly monitor contract provisions and continued obligations as outlined by clauses and legal terms included within a given contract. In addition, specific contract terms will need special attention and consideration due to the significant financial impact and liability they can have on the company.
Here are four contract management legal terms that are often associated with liability and responsibility.
- Contract Conditions: oftentimes, a condition of the contract will refer to a specific contract term in which a party (or parties) must comply with. On the contrary, conditions of the contract can additionally refer to future events that might impact the obligations included in the contract.
- Benchmarking Clause: referring to the recurrent reviews of select contract terms against mutually accepted benchmark measures. Two common challenges pertaining to this clause include the negotiation of review frequency and the selection of the individual responsible for conducting the periodic reviews.
- Limitation of Liability Clause: this clause defines the cap of damages that a party can recover from in the case that a breach of contract occurs. Occasionally, courts will not uphold a limitation of liability clause if the clause definitively violates legal stipulations.
- Indemnification Clause: an indemnification clause outlines the manner in which one party to a contract formally agrees to hold responsibility for financial liability that the other contracting party faces when working with third parties. In this way, an indemnification clause serves to protect one party from liability, contractually obligating a party to recompense the other for damages. An indemnification clause can transfer a significant amount of risk from one party to another, requiring much thought and consideration prior to agreeing upon the clause itself.
Here at Dock, we understand all the complexities of managing contract lifecycles and the myriad of delicate processes that contract managers and business owners must oversee. Attaining a fundamental understanding of some basic, yet commonly used legal concept and terms often found in contract lifecycle management can be extremely conducive to successful communication and collaboration between all involved departments and stakeholders. With Dock, we make contract management software easy to implement into your current contract management system so you can powerfully and confidently control your contracts. Reach your unique business objectives and goals with the help of us here at Dock.
Contract lifecycle management can be largely improved with the correct contract management software. Here at Dock, we are experts in SharePoint and Office 365 and want to help businesses utilize their features to revolutionize and streamline contract management.
Our Contract Management System is equipped with several amazing features that will help improve the quality of your contract management processes with the help of a SharePoint and Office 365-based collaborative software interface. Improve business dealings, increase contract compliance, reduce bottlenecks and turnaround times, enhance risk mitigation efforts, and completely overhaul contract management team productivity for the better with our contract management software.
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Written by Lindsey Paulk
Lindsey Paulk is a Content Writer in Jacksonville, Florida that specializes in digitally communicating all-things contract management.