Even the best-written contract may need to change, and when it does you have two options: Contract breach, or contract amendments. The difference between them is the difference between your worst nightmare and your best friend. Don’t despair! This is the info you need to decide what to do.
What is a Contract Breach?
Since a contract is an agreement to deliver services or products in specified ways over an agreed timeframe, any variance from what is in the contract is a potential breach.
For example, let’s say you run a personal fitness company and you have a contract with a gym to run weekly classes there every Wednesday at 8am. Your instructor can’t make 3 of the 20 classes you have committed to and you’re unable to find someone to replace them.
A peek at your contract shows that you agreed to perform that service for 20 consecutive weeks, from June to October. If you don’t do it, a court would likely find your company in breach of its contract.
So what are your options? You can throw up your hands and accept the risk that the other party will sue you for breach of contract, or you can suggest an amendment to your contract.
What are Contract Amendments?
It is a separate document that is negotiated separately from a contract that amends one or more of the terms of the contract. Attorney Richard Stim says contract amendments can take three forms:
- Crossed out or “redlined” changes with the new text overwritten or beside the original (such as in track changes)
- Entire clause replacement, or
- A description of changes – for example: In the third paragraph, replace “2020” with “2021” and “October” with “January.”
He said you can choose which format your amendment should take, or mix them up. Like your contract, what is being said should be clear to both parties and a neutral third party.
Why Would You Want to Amend a Contract if You’re About to Breach?
There are many circumstances when you might want to amend rather than risk breaching. Here are three common ones:
1. The Amendment is Minor
Often, the change you need to make is pretty small and these are great opportunities for contract amendments.
In our personal fitness contract example, the gym may be able to reschedule those three classes, or all of them, to a time that works better for you and the gym. They may allow for some to be conducted online, or at a different location. They may allow you to reduce the cost of the contract and remove those three from the schedule. You don’t know until you ask
Remember that what’s minor to you might be a big deal to the other party. In the above example, the gym may trade on its commitment to a consistent schedule, or have a media event planned to coincide with one of the classes you need to move. Keep the lines of communication open and try to be accommodating. After all, it’s you who wants to make the change!
2. The Cost of Breaching Your Contract is High
It’s important to note that the costs involved in a breach can be crippling for a small business. There is the money you won’t get from the contract itself, plus potential damages to the other parties, and the cost of litigation itself which can run into the tens of thousands of dollars.
When you get down to calculate the risk of breaching a contract, it makes sense to do everything you can to avoid it.
3. You Want to Protect the Business Relationship
Suggesting an amendment as soon as you know you can’t deliver goes a long way to keep the relationship sweet between you and your business partners. It demonstrates trust and willingness to adapt.
Every business leader knows that sometimes things happen that derail the best of plans. What goes around comes around! If they are flexible today, perhaps tomorrow their partners will be flexible with them.
And psst – business leaders talk. If you play fast and loose with your partners, word will get around that you’re untrustworthy and others in your industry will avoid doing business with you.
How to Perform Contract Amendments
Amending a contract is a bit like a miniature version of the contract management lifecycle. The party that wants to make the change requests an amendment and draws up the suggested change, referencing the original contract. There is then a revision and redlining process, approval, and execution. Just like a contract, the amendment must be signed by both parties. Then it should be attached to the original.
One more thing: While you’re making amendments, think about how you might prevent a similar issue from arising again. Now that you know your fitness instructor schedule is less robust than you assumed, you might consider adding a clause that allows you to renegotiate class timing more easily. For example, you might move those details to a scope of work that can be negotiated separately with ease.
Being negotiated at a different time than the contract and sometimes by different people, amendments frequently get lost in small businesses. Securely storing them in a contract lifecycle management tool like Anapact will ensure that they’re not only easy to find but that the changes are taken into consideration at renewal time.
The last thing you want is to sign a contract next time that you then need to amend again!
Anapact is a robust contracting platform that will keep your business in line with what your contracts say you’ll do – even if that changes from time to time. Get a demo today.