Contract Amendment Overview
A contract amendment is a document that is used to change an existing contract. It alters the original terms of a contract that all parties have already agreed upon.
Amendments do not create new contracts. Instead, these documents become part of the original signed agreement between the parties. These alterations will void any contradictory terms in the initial contract.
Contract amendments are important because they provide an opportunity for all parties to modify the terms of agreement. The existing contract may have established a long-term business relationship or be between multiple parties. Over time, however, circumstances may necessitate a change in the contract. Rather than starting over with a new contract, an amendment provides a cost-effective and efficient way to do so.
Contract amendments are typically entered into when the original contract requires changing a specific clause. An amendment can only modify a particular portion of a contract. For instance, the original end date may need to be extended , or the financial terms of the contract may need to be increased. In any case, an amendment will only alter the terms specified in the clause.
Entering into an amendment is almost always recommended over creating a new contract. A new contract requires all parties to re-enter into the entire legally binding agreement. On the other hand, a contract amendment is typically more practical because it focuses on the specific changes needed.
If the amendments are significant or affecting multiple clauses, the parties may also consider entering into an amended and restated contract. This essentially restructures the original contract, and alters or removes existing terms. If there are numerous changes across all parties to an existing contract, an amended and restated contract may be recommended over an amendment to the particular clauses.
For a contract amendment to be legally binding, some states require that all parties enter into the agreement voluntarily. Additionally, all parties to the contract must consent to the terms of the amendment.
Important Components of a Contract Amendment
While contract amendments are often general in nature, there are certain key elements that should be included in any such amendment. A contract amendment should identify the parties to the original contract, i.e., the original parties and possibly other parties who have subsequently assumed the rights, obligations and liabilities of the original parties. A contract amendment should also identify the original contract agreement that the amendment is being added to, and perhaps describe the agreement or the specific section of the agreement that is being amended.
However, the primary purpose of an amendment is to outline exactly which part of the original agreement is being changed. An amendment could address either a change in a specific provision or replace a provision entirely.
In some cases, the changes to the original agreement could be cosmetic changes, such as changing the spelling of a party’s name or address, but in other cases, the changes to the original agreement constitute a substantial modification to the original agreement.
A properly drafted amendment can be a standalone document that could be filed with the original agreement, or a modification could be made directly on the original document. If the original document is amended directly, it would be critical to use the identical font and paper used in the document, and to use the same numbering system, in order to appear as if it were part of the original agreement.
A poorly drafted amendment can lead to future disputes surrounding the agreement.
Using a Contract Amendment Template in Word
How to Use a Word Template to Create a Contract Amendment
A Word template for a contract amendment is designed to save you time, but it can also cause you problems if you don’t use it correctly. You may not realize that the document is a downloadable template that you have to customize to make it work for your situation. You might get frustrated when the fields don’t fill in automatically, and you could end up with an amendment that contains text or clauses that don’t apply to your situation. If you want to get the most out of your amendment template, this step-by-step guide will help you understand how to customize it to meet your needs. You can download a free contract amendment template from the bottom of this post. Step 1: Click on the link to begin the download. Step 2: Open the template with Microsoft Word. Step 3: Click "Enable Edits" at the top of the Word document. Step 4: Fill in the name of the contract. Use the drop-down list to select the contract (if you have more than one contract with this amendment). You’ll also need to fill in the date of the original agreement and the name of the original parties. If you have more than two parties, you’ll need to add additional lines. Step 5: Fill in the blank spaces in the amendment. Use the drop-down boxes to list the items you are changing. If you have multiple changes, click "Add" and list each change. If you need to remove an item, click "Remove." You can add notes about the change as well.
Benefits of a Word Contract Amendment Template
There are a number of benefits to using a template for contract amendments in your business. Having a template saves time and creates a consistency across all of the amendments that a company uses. This in turn speeds up the ability to create a contract amendment so that parties are not having to come up with something new or fresh every single time a slightly different change to the contract needs to be made. Creating a contract amendment can be time consuming, so having something on hand makes it easier to make these changes on the fly when they are needed. Contract amendments frequently happen, and it can be difficult in some businesses to try and always get a legal professional involved to draft an amendment, or sometimes when a contract needs to be changed it happens very close to a deadline. So having something you can use can come in handy.
The main benefit for our free contract amendment tool is that it is easy to use. It is free, and you can always go back and revise it to make it more useful if need be. It also means that you can have one person who goes through and polishes and edits the template so that everybody is using the same one, instead of having multiple people coming up with their own version that is not the same as everyone else’s. This makes drafting and looking at new contract amendments much easier.
Word templates are also helpful because it reduces the chances that an amendment will not be "drafted" correctly. You will not forget language that needs to be included in an amendment or forget steps that should take place. Because it is written by a legal professional already, it will ensure that the best practices are followed whenever you need to make a contract amendment.
Common Errors in Contract Amendments
The following are some common mistakes bookkeepers and contract managers sometimes make when amending contracts:
1. Not Restating the Original Agreement
For any change, it is important to restate the provision being changed. In a government contract, this includes citing the specific FAR clause (or clauses) being added or deleted. This may seem unnecessary but it helps to ensure the modification is processed correctly and provides a simple reference point for the reader to use. For example, if you were to add a new reporting requirement to be included in a contract supplement, that addition should specify that it is under FAR 42.1101 and provide the verbatim text from the regulation itself. This will promote consistency across the contract and ensure everyone is on the same page of what it is that is being added.
2. Inconsistency Among Related Amendments
It is important to ensure that all amendments are consistent. For example, if you are changing the delivery schedule as a part of a modification, you may have to change the terms of the payment provisions or the terms of the shipment of goods provision. When doing so, it is good practice to identify those provisions so all are aware of potential changes that relate to the provisions being amended. While this is more of an administrative issue , it is still an issue that should be taken into consideration when working with multiple amendments. Simply referencing both the original provision and the provision as amended by the current modification can prevent confusion by future readers.
3. Failing to Include Necessary Contract Amendments
Contract amendments are often negotiated informally between two parties or individuals to smooth out small partnership disputes. When this occurs via email, as is usually the case, emails can get lost over time and there may prove to be a lack of formal agreements. To combat this, you should add all formal amendments to the formal contract in the form of an organized contract amendment ledger. This clarifies all existing agreements and prevent miscommunication and internal accounting errors.
4. Not Following Template Procedures
Creating your own contract amendment and renewal templates, while more established and collated with all necessary provisions, may be more of a detriment than a benefit. Using a standardized contract amendment template eliminates many human oversight errors. It should be noted that some companies do not allow contract managers to opt for their own templates. Even so, you should check with your company to find out how to avoid those individuals who may take too many liberties with contract amendments.
Example Contract Amendment Template
AMENDMENT NO. ___ TO SUPPLY AGREEMENT
This Amendment No. to Supply Agreement (this "Amendment") is made as of the ___ day of ______, 20________ by and between ________ ("Supplier") and ________ ("Customer") (collectively the "Parties").
RECITALS
WHEREAS, Customer and Supplier have entered a Supply Agreement dated ________ 20___ (the "Agreement"); and
WHEREAS, the Parties desire to amend the Agreement as provided in this Amendment.
NOW THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the Parties agree as follows:
AGREEMENT
For and in consideration of the Recitals above, Supplier and Customer do hereby amend the Agreement as follows:
1. Amendment to the Agreement. Section 3 of the Agreement shall be amended to read as follows:
"3. The supplies to be supplied by Supplier to Customer shall be described on Exhibit A attached hereto (hereinafter the "Supplies").
2. The Recitals above are hereby incorporated in this Amendment and made a part hereof.
3. Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Supplier and Customer have executed this Amendment as of the above date.
Considerations When Amending Contracts
Typically, a contract amendment must be signed by the parties to the original contract and the parties must have the legal authority to amend the contract. If either party wishes to transfer or assign the contract, the other party must consent to the assignment. Amendments need not be signed by the parties to be legally valid; however, in most cases a contract will not be enforceable unless signed by that party, unless the parties have both previously evidenced their signatures by a separate authorization.
While this discussion is more practical than legal, it is important to ensure that the representative who signs a contract has the authority to do so. For example, in New York, the Business Corporation Law states that any contract made by a corporation (other than in the usual course of business) requires approval by its board of directors. Tenure of office manual policies and guidelines typically require board approval for any contract. Board approval can be obtained by a vote in a business meeting or by unanimous written consent of the directors. Even when a corporation is signing a contract, look to see if the contract requires approval by the corporation’s shareholders. Generally, this is only required for major asset sales or mergers . In the absence of restrictions on authority, a properly ratified contract will be enforceable against the corporation.
Although the foregoing discussion emphasizes corporate approvals, it is important in all cases to confirm the authority of those executing the document, especially where the party executes a document on behalf of another entity. For instance, in the case of a limited liability company, the approval to sign a contract must be obtained from the manager or a majority-in-interest of the members, unless its limited liability company agreement expressly vest such authority in one or more members.
When an amendment has not been properly approved by authority to execute documents, a party may successfully argue that the contract is voidable.
Finally, an amendment will most likely not affect the enforceability of the remainder of the contract if the contract contains a severability clause. In other words, courts will construe an invalid part of a contract as invalid, while at the same time maintaining valid provisions of the contract. However, if the defect was the result of an intentional failure to satisfy a material term in the contract, the entire contract may be unenforceable.