When And Why You Need A Supplemental Agreement?

Content

• What is a supplemental agreement?
• Do amendments and supplemental agreements have the same function?
• When to use supplemental agreements?
• Why use a supplemental agreement?
• How to draft a supplemental agreement
• Identifying parties
• Describing the original contract
• Stating the changes or additions
• Signatures and execution
• Conclusion

Regulations, market conditions, or the parties’ needs may change as a business relationship progresses. Under these circumstances, creating a new contract from scratch might not be worth the time and trouble. Just imagine going through drafting, negotiation, approval, and signing again. Instead, companies can use a supplemental agreement to address modifications. 

They can come in handy for enhancing and clarifying existing contracts. Supplemental documents can address unforeseen circumstances and protect various contract types, including employment, lease, and construction agreements. In this blog post, we'll delve into the significance of supplemental agreements and how they can benefit various contractual arrangements.

What is a supplemental agreement?

A supplemental agreement is a legal document that modifies or adds to the terms of an existing contract. Without rewriting the entire contract, businesses can use it to alter their original arrangement. 

Real estate, business partnerships, employment contracts, and other sectors frequently use supplemental agreements. They can change a contract's terms, duration, payment schedule, and scope. The supplementary agreement acts as a secondary contract, while the original contract is the primary one. For example, parties can specify the changes in a supplemental contract if they want to alter the terms of a vendor relationship rather than creating a whole new agreement.

Do amendments and supplemental agreements have the same function?

Supplementary agreements are convenient for including new terms or conditions not part of the original contract. They address specific issues that arise during a contractual relationship or modify certain aspects of the original agreement.

They add new information without altering the core terms of the original contract. It means the primary agreement remains intact, and the supplementary agreement only enhances it.

On the other hand, amendments are changes made to the existing terms of a contract. Unlike supplementary agreements, which add new information, amendments modify or replace existing terms in the original agreement. 

Parties use it to make alterations to the contract that impact its core provisions. It enables businesses to update or revise contract terms due to changing circumstances or new requirements. By formally documenting these changes through amendments, all parties can ensure the altered terms are clear and legally binding. 

Addendum

It is an additional document to modify, clarify, or provide further information in a contract. An addendum, like a supplemental agreement, enables changes or additions to the original agreement without the need to rewrite the entire document. They are common in real estate transactions, where parties may need to add specific terms or conditions after executing the original contract.

Exhibit

Exhibits are documents, materials, or other items attached to a contract or agreement to provide additional information or evidence. Exhibits support the terms and conditions outlined in the main contract and can include maps, diagrams, financial statements, or any other relevant documentation. For example, in a business contract, an exhibit may outline deliverables.

Schedule

It is a list or table that sets out specific details or timelines related to the main agreement. They outline payment schedules, delivery dates, project milestones, or any other time-sensitive information relevant to the agreement. 

When to use supplemental agreements?

Supplemental agreements can help businesses deal with clients, partners, and vendors. They can protect interests and enhance contractual relationships. These agreements can cover various topics, including changing pricing or payment terms, extending deadlines or timelines, and adding new services or products.

1. Changes in circumstances

Business environments are dynamic and constantly changing. When unforeseen circumstances require adjustments to your existing agreements, a supplemental agreement can help you adapt quickly and effectively.

2. Adding new terms or services

A supplemental agreement can specify the details of these additions without needing to draft a whole new contract if parties choose to broaden their offerings, launch new goods, or target a different market segment.

3. Resolving disputes amicably

In the event of a disagreement or dispute between parties, a supplemental agreement can clarify misunderstandings, resolve conflicts, and prevent the escalation of legal issues. It can serve as a tool for renegotiating terms and finding common ground.

Why use a supplemental agreement?

Contractual agreements must be dynamic to keep up with the changing business landscape. Supplemental agreements enable the parties to ensure that contracts remain relevant and up-to-date. 

As circumstances change or new information comes to light, it may be necessary to adjust the terms of a contract. Instead of starting from scratch, parties can use a supplemental agreement to make targeted changes while keeping the core of the original contract intact. This flexibility allows businesses to save time and resources.

A supplementary agreement also ensures all changes to a contract are legally verifiable and enforceable. Thus, they can avoid misunderstandings, disputes, and potential legal challenges. It provides a clear record of any modifications made to the original agreement, helping to maintain transparency and accountability between the parties involved.

How to draft a supplemental agreement

Whether businesses are making amendments or adding a supplemental agreement, it is essential to ensure clarity and legal compliance. The legal content should contain all the essential elements, such as offer, acceptance, consideration, capacity, etc.

1. Identifying parties

The first step in drafting a supplemental agreement is identifying the parties involved. It includes the original parties from the initial contract and new parties as part of the secondary contract. It means stating the full legal names of all parties, including any relevant business entities. 

Businesses can add, edit, and manage party contacts using Dock 365. It comes with complete metadata information for the party, including type, address, email, etc.

2. Describing the original contract

Next, outline how the supplemental agreement amends or expands upon the original contract. Include the date of the original contract, the parties involved, the terms and conditions, and any relevant details that will help contextualize the changes or additions.

Dock contract management software provides a centralized repository where all contracts and related documents are stored securely. The advanced search capabilities allow parties to filter and retrieve files. It enables businesses to access the original contract for amendment. Thus, they can guarantee all stakeholders are working with the most up-to-date version. 

3. Stating the changes or additions

Businesses must clearly state the changes or additions to the original contract in the supplemental agreement. It can include modifying existing terms, adding new clauses, or removing certain provisions. Be specific and detailed in describing the changes to ensure parties know the modifications and their implications.

Many contract management software solutions offer templates for supplemental agreements, making it easier for users to create a legally binding document quickly and accurately. Dock 365 provides comprehensive, pre-approved templates and clauses to standardize contracts across the organization. 

Digital redlining allows the parties to negotiate the changes in real-time and avoid miscommunication. They also offer automation to populate the relevant information from the original contract into the supplemental agreement, reducing the chances of errors. 

4. Signatures and execution

The final step in drafting a supplemental agreement is to ensure that all parties sign the document to indicate their agreement with the changes or additions. 

Contract management software enables collaboration among multiple stakeholders involved in the drafting and approval of supplemental agreements. They can use workflow templates to manage internal contract review and approval processes. Dock allows businesses to set up reviewers, approvers, and deadlines. They can add notes, review, and edit documents and contracts.

Version control enables parties to track changes, add comments, and receive notifications for document status. After review and approval, the next step is executing the supplemental agreement. Dock’s integration with advanced electronic signature solutions enables parties to execute contracts within the platform. Businesses can send the documents to relevant stakeholders for signing using Adobe Sign, DocuSign, or Sertfi. Consequently, there’s no unnecessary delay or complication between approval and execution.

Conclusion

Supplemental contracts are an apt choice if businesses want to add additional terms and conditions to an existing agreement. Creating a new contract from scratch would cost them more time and money.  

These contracts are useful for specifying new details or modifying existing ones to navigate unforeseen circumstances. They can help ensure that all parties are clear on the changes and can help prevent misunderstandings.

Although helpful, creating and carrying out supplemental agreements can be challenging. Dock 365 contract management software offers tools to automate the entire contract lifecycle, including drafting, negotiating, signing, and monitoring.  

Schedule a live demo today to learn more about Dock's automated contract management solution.