Business contracts must often be modified to reflect changes to the parties’ agreement. Below I discuss the main questions you should ask when drafting and negotiating contract amendments.
- What approvals are required to amend? Commercial contracts generally contain an amendment and modification provision that governs changes to the terms. Contracts typically require that amendments be made in writing signed by the parties.
- How much text must be amended? If the volume of text to be amended is substantial and it would be confusing to read a stand-alone amendment alongside the contract, then consider amending and restating the entire agreement. Choose the most efficient path.
- Does the contract need to be modified to reflect business reality or corrected? Contracting parties often operate differently in practice than as stated in the contract. An amendment may be an opportunity to clarify contractual provisions that do not reflect reality. In addition, if there are any errors or typos, the amendment can correct them.
- Does the client wish to change any aspect of the deal? If the opposing party requested the amendment, the client may wish to request changes to contractual provisions unfavorable to the client in exchange for agreeing to the amendment. This should be done diplomatically if possible in order to maintain good relations between the parties, but sometimes a little friction is unavoidable.
- Are there any traps? Often an opposing party will request what appears at first blush to be simple change and present it as such. On further analysis, however, the proposed change may result in potential increased liability risk to the client. Re-read the entire contract together with the proposed amendment to find the traps. For example, if the proposal is to amend a distribution agreement to allow the appointment of sub-distributors, the appropriate amendments may include:
- grant of right to appoint the sub-distributor, subject to supplier approval of sub-distributor agreements;
- requirement that each sub-distributor agreement contain acknowledgment by the sub-distributor of: (i) subordination of sub-distributor agreements to master agreement; (ii) familiarity with master agreement terms and conditions;
- acknowledgment by distributor of its liability for sub-distributor’s performance of obligations;
- reporting requirements for sub-distributor sales;
- additional indemnity by distributor for sub-distributor claims, acts and omissions; and
- additional termination rights for sub-distributor acts or omissions.
- What boilerplate should be included? Governing law, successors and assigns, counterparts and costs and expenses is generally sufficient boilerplate for a simple amendment. An amended and restated agreement should include all boilerplate in the original agreement.