How to Draft a Contract - Step by Step Guide

So, how do you get started?

To start a simple contract, begin by identifying the parties and outlining the essential terms. A contract should include the agreement, consideration (what is exchanged), terms and conditions, and signatures. Keeping it straightforward and clear helps avoid misunderstandings and ensures enforceability.

Contracts are commonly used in various contexts, such as employment agreements, service contracts, and sales agreements, each with its contract types and specific legal implications. These documents aren’t just a formality; they’re the backbone of securing any agreement.

Whether you are drafting a contract in the US or the UK, understanding the legal aspects and ensuring that the contract complies with applicable laws is crucial for its enforceability.

Let’s walk through the key steps to drafting a contract.

Steps to Write a Contract Between Two Parties:

1. Know what to include

2. Prepare thoroughly

3. Understand legal aspects

4. Identify the parties

5. Agree on terms

6. Specify the duration

7. Define consequences

8. Determine dispute resolution

9. Consider confidentiality

10. Verify legality

11. Open for negotiation

12. Finalise and store properly

1. Know What to Include

Certain elements are non-negotiable when drafting a contract—they form the essential elements of a legally binding contract. These include the core agreement, the exchange of value (consideration), and the terms and conditions that outline each party's obligations. It's also important that all parties have the legal competence to enter into the contract, and no contract is complete without signatures.

These core elements are what give the contract its structure, and clarity here is key. If the language is too vague or ambiguous, you open yourself up to disputes and worse, the contract might even be unenforceable.

To keep things simple, consider using our contract templates, which are designed to cover these essentials comprehensively. Think about common agreements like employment contracts or NDAs — all of these require the basic building blocks to be legally binding.

2. Prepare Thoroughly

Before drafting a contract, identify the parties, outline the key terms, and gather all necessary information. This sets a solid foundation for a clear and enforceable agreement.

Writing your own contract is possible, but its complexity varies by agreement type. Simple contracts are easier, while more complex ones, like aleatory contracts or partnership agreements, require greater precision due to the unpredictable risks involved. Proper preparation ensures all requirements are met for an enforceable contract.

Clear objectives and thorough negotiations are essential for mutual understanding. Legal document assistants like Pocketlaw’s PLAI Assistant can streamline this process by helping gather and verify the necessary information, ensuring accuracy and completeness from the start.

3. Understand Legal Aspects

Every contract is shaped by the legal framework it’s based on. Whether you are drafting a contract in the US or the UK, understanding the legal aspects and ensuring that the contract complies with applicable contract law is crucial for its enforceability.

For instance, US contracts often need to comply with federal and state laws, while the UK might have different requirements around contract formation and enforcement.

Keeping your contract legally sound is non-negotiable. If you don’t comply with the necessary laws, your contract could be declared void.

4. Identify the Parties

This one’s simple but crucial—make sure the parties involved are clearly identified.

Each party should be named accurately, and their roles should be spelled out in detail. No ambiguity here—you want to make sure it’s crystal clear who’s agreeing to what.

Accurate identification prevents any future disputes or misunderstandings.

Contract lifecycle management tools, such as Pocketlaw’s CLM software, assist in managing and verifying critical information, ensuring that every detail is accurately captured and properly recorded for a streamlined contract process.

5. Agree on the Terms

The heart of any contract is the agreement on the terms. This is where you define the roles, responsibilities, and obligations of each party.

Mutual understanding here is essential. If the terms aren’t clear, or if there’s a misunderstanding, the contract could fall apart.

Good communication during contract negotiation is key.

6. Specify the Duration

Every contract needs a clear timeframe—when it starts, when it ends, and any conditions for renewal or termination. Having these dates clearly laid out helps avoid misunderstandings and ensures that everyone knows the deal’s timeline.

Think about the nature of the agreement and the expectations of everyone involved. By specifying the contract’s duration, you’re preventing any confusion down the line.

7. Define Consequences

What happens if one party doesn’t hold up their end of the deal? Defining consequences for breaches of the contract is a must. The breach of contract section outlines what happens if someone fails to meet their obligations—whether it’s a financial penalty or some other remedy.

Legal Implications of Breaches

A contract violation occurs when one party fails to meet their responsibilities. Penalties can include compensation, termination, or legal action, providing remedies to restore the non-breaching party.

By including this section, you create a framework for addressing any violations and help ensure that the contract is taken seriously by all parties.

8. Determine Dispute Resolution

No contract is foolproof, and disputes can arise. That’s why it’s important to include a dispute resolution clause. This sets out the process for handling any disagreements, whether through mediation, arbitration, or litigation.

Having a dispute resolution mechanism in place can save you time and money by avoiding lengthy legal battles. Make sure the method is appropriate for the nature of your agreement.

9. Consider Confidentiality

If your contract involves sensitive information, a confidentiality clause is essential. This ensures that proprietary information or personal data isn’t shared without permission. Protecting this kind of information maintains trust between the parties and safeguards everyone’s interests.

10. Verify Legality

Before you finalise anything, make sure the contract is legal. This means reviewing it to ensure all requirements are met and that nothing in the contract violates any laws.

Legal compliance is essential to prevent the contract from being declared void or unenforceable.

11. Open for Negotiation

Before signing, open the contract for negotiation. This allows all parties to have their say and agree on the terms. Flexibility and a willingness to negotiate are critical to reaching a fair agreement.

Negotiation plays a crucial role in the contract drafting process, ensuring that all parties have a voice and that their interests are adequately represented.

Pocketlaw’s review & redlining tools can make this process more efficient, helping you reach a consensus without unnecessary back-and-forth.

12. Finalise and Store Properly

Once everything is agreed upon, it’s time for contract signing. Make sure everyone gets a copy and that it’s stored securely. This ensures the document is enforceable and available if needed in the future.

In the event of a contract breach, having a properly stored and executed contract is important for enforcing the terms. Using a tool like Pocketlaw contract repository software helps manage eSigning, approvals, and secure storage efficiently, streamlining the entire process. This ensures your contracts are properly executed and safely stored for future reference.