Contract Modifications: Tips For Successful Contract Changes

Contracts form the basis of all business transactions, whether acquiring products or onboarding new customers. They provide the scope, payment terms, duration, termination, and other pertinent information to ensure seamless relationships. However, changing circumstances and needs may compel the parties to alter the terms of the contract. 

Everything must be done according to the book for these changes to be valid and enforceable. Parties must adhere to specific legal requirements when changing an executed contract. In this blog post, we will delve into the world of contract modification, highlighting its importance, types, and steps involved in modifying a contract effectively.

What is contract modification?

Contract modification entails altering the terms of an existing contract. It can include changes to the scope of work, payment terms, deadlines, or any other provisions of the original agreement. These modifications are common in long-term contracts and wide-reaching projects where parties may need to adjust to unforeseen events.

Regardless of the motivation for these changes, parties must meet all of the necessary legal requirements to make them legally binding. Consent, consideration, and lawful terms are all necessary for modifying contracts across sectors and jurisdictions. While oral changes are a possibility, writing and executing them enables businesses to prevent future disputes and disagreements. 

What are the different types of contract modification?

Businesses ensure contractual terms and conditions align with their growing demands through modifications. However, these changes will be enforceable only if the parties uphold all the legal requirements specific to industry and jurisdiction. Otherwise, they risk becoming embroiled in breaches and costly litigation, which can sour their relationships. The majority of contracts contain clauses that outline who, what, when, and how changes can be made. It enables parties to systematically and legally make changes without infringing on one another's rights. 

• Bilateral modifications

In certain cases, both parties must negotiate and agree upon the alterations. These bilateral modifications typically involve the relevant stakeholders negotiating the changes, approving them, and then signing them to indicate their agreement. It includes adjustments to the scope of work, payment, deadlines, and duration. For example, both the client and the service provider are accountable for implementing bilateral modifications in a service agreement.

• Unilateral modifications

Unilateral modification involves one party making changes to the contract without input from the other parties. While one-sided, these alterations still require consent from all the involved stakeholders. Informing everyone of the changes and getting their signature is a major part of unilateral processes. For instance, owners can alter the terms of a SaaS agreement without negotiating with the customers. The client must, however, be made aware of the changes and give their consent. 

• Substantive modifications

These modifications significantly change the core terms of the contract, including rights, obligations, payment terms, and scope. Bringing about these transformations requires careful consideration. Hence, most parties prefer written agreements and signatures to officiate substantive modifications. For instance, if there’s going to be a change in the price of a commodity, then both the vendor and buyer must negotiate it before officially modifying the contractual terms.

• Administrative modifications

These changes do not affect the overall nature and purpose of the contract. It generally entails fixing spelling or grammatical mistakes, updating relevant information (party name or address), or providing additional explanations for terms. Administrative modifications enable businesses to improve the accuracy and enforceability of contractual agreements. Even though the changes aren’t substantive, all the relevant stakeholders must be aware of the update.

What does modifying contracts entail?

The most critical legal requirement for modifying any contract is mutual consent. Both parties must agree to the changes made to the terms and conditions. The agreement may be implied (by actions) or explicit (in writing). Unless the change is unilateral and does not need the opinions of all parties involved. 

In many jurisdictions, modifications require consideration to be legally binding. It means that something of value must be exchanged in return for the modification. For example, if one party agrees to extend a deadline, the other might provide additional services or reduce costs. While many contracts allow for oral modifications, it’s always advisable to document any changes in writing. Written modifications provide clear evidence of the new terms and can prevent disputes down the line.

Some contracts contain specific clauses regarding modifications, often stipulating that any amendments must be in writing and signed by both parties. Ignoring these clauses can render the modifications unenforceable.
Contract modifications must comply with relevant laws and regulations, which can vary by jurisdiction. For example, consumer protection laws might impose additional requirements when altering contracts with consumers.

How does contract management software streamline modification?

Expanding businesses require efficiency and agility while managing contracts. Commercial agreements are dynamic and must adapt to changing conditions, demands, and goals. However, it can be expensive and time-consuming to keep up with these advancements using antiquated systems and manual techniques. Spreadsheets and documents still require constant input from legal professionals to serve their purpose. Here’s how contract management software addresses these challenges:

1. Centralized Repository

Companies with growing portfolios may struggle to store and manage contracts across Excel spreadsheets, email, or Google Drive. Fortunately, most contract management software, like Dock 365, allows businesses to centralize all their contractual agreements in a digital repository. They can securely store, organize, and access contracts anytime. A single source of truth and searchability lessens the administrative burden on the legal team. 

During the modification process, the stakeholders can quickly find the relevant documents. Moreover, it prevents disputes and confusion regarding the transformation of the terms and conditions. Businesses can scale modifications and amendments without risking errors or duplications. They can utilize user-based permission to prevent unauthorized access and unlawful modifications. 

2. Version Control

Contract modifications often lead to multiple versions of the same document, which can create confusion. If parties aren’t working with accurate information, it can lead to disputes and breaches. Contract management software provides version control, ensuring that all parties are working from the most up-to-date contract version.

They can effortlessly track changes throughout negotiation, reviews, and execution. Contract management is coherent even when there are numerous parties and contracts. It minimizes the risk of errors and miscommunications during the modification process. Thus, companies have complete control over contract revisions and know who made what changes.

3. Automated Alerts and Workflows

Keeping track of contract modifications can be overwhelming, especially with numerous contracts to manage. Contract management software automates alerts and notifications regarding important dates, such as modification deadlines or renewal dates. Real-time document status also notifies relevant parties of any changes to the contract. As a result, everyone remains on the same page throughout the modification process. 

Bilateral modifications require input and approval from several stakeholders. Collaborating with multiple parties to carry out the modification process can be overwhelming for large-scale businesses. Automated workflows allow legal professionals to route contracts to relevant approvers and reviewers in no time. They can assign responsibility to specific stakeholders, deadlines, and real-time alerts to ensure the document moves smoothly through approval and reviews.

4. E-signature Integration

Consent is integral to modifying contractual agreements lawfully. Wet signatures, paper contracts, and email chains can all complicate and disrupt the signing process. E-signature integration in contract management software enables parties to get approval and signatures from relevant stakeholders. Without switching platforms, businesses can execute modifications from anywhere, anytime. These legally binding solutions, such as Adobe Sign, DocuSign, and Sertif, comply with eIDAS, E-SIGN, and UETA acts. The automated workflows, audit trails, and notifications allow seamless collaboration for all parties. 

Conclusion

Modifications to contracts are often inevitable. Changes in project scope, regulatory requirements, or shifts in market dynamics can necessitate adjustments to existing agreements. However, manual processes for modifying contracts can lead to errors, miscommunication, and delays, potentially costing businesses time and money.

Dock 365 contract management software, built on Microsoft 365, automates the entire contract lifecycle, from creation to execution and through to modifications and renewals. Centralizing contract-related tasks and information allows businesses to reduce errors and save time. They can create custom workflows to get contracts to relevant approvers and reviewers in no time. 

Real-time document status and version control empower parties to oversee all the changes to a contractual agreement. Even with multiple stakeholders, everyone has the latest information at all times. Access to e-signature solutions within CMS platforms means a painless signing process to legalize modifications. Dock 365 also seamlessly connects with ERP and CRM systems to bring all the contract-related tasks, people, and data to one place.