Drafting commercial contracts: the basics and the principles

Instead, the true objective is to create a practical, high-quality working agreement that meets the essential needs of both parties, allowing them to conduct business smoothly and efficiently without unnecessary obstacles or delays.

Structure 

Commercial contracts can be built up in a logical order. Start with clauses that explain and are specific to this contract. Then, add operative clauses that specify the rights and obligations of the parties involved, possibly in a chronological order. Finally, include the general housekeeping clauses that are common to most contracts.

Considerations before drafting 

Where the commercial contract is technology related, contracts are usually generated by the vendors and the suppliers, however, customers will also be actively involved, especially when the contracts involve developing software or other specifically designed or tailored services.  

When putting together a contract, there are several essential ground rules which will guide whether and how much resources should be allocated to drafting the contract. Useful questions to ask include: 

• Is the contract of significant value? 
• Is the contract crucial to the business's operations? 
• Is the contract for a product or service where the supplier insists on standard terms? 
• Is it more cost-effective to review and negotiate the other party's document? 
• Does the technical content need to be initially created or described by one party? 

Key principles 

A good commercial tech contract must be ‘relevant’. Tech contracts are different from other commercial contracts in the sense that the language of a tech contract must accommodate the innovative and ever-evolving nature of technology while simultaneously providing the certainty and clarity that a good contract should offer.  

There are two overriding features as far as tech contracts are concerned. These principles are crucial regardless of the purpose of the contract, be it a licensing agreement, a supplier agreement, or a developing agreement. 

First, the contract should consider the need to adapt, and to provide contractually for, new and expanded products and services. This is important to ensure technology, both new and old, is properly and adequately protected.

Secondly, the contract should protect intangible assets, setting out in clear terms the ownership and scope of the intellectual property rights granted to the parties.  Such contractual terms should echo with the business’s intellectual property strategy. In this regard, a carefully considered intellectual property strategy is crucial, as it can significantly impact a business's operations and revenue

Ultimately, when drafting a contract, it is important for contract clauses to account for potential legislative updates, product improvements, and collaborative efforts within the organisation and between different companies and teams. Contracts should be designed to support business collaboration while also being able to manage the liability and risk of the parties effectively.