One of the main reasons for making a contract is to keep records of each party’s promises, rights, and duties. Circumstances can change, however, requiring you to update your contract. To do so, you must create a contract amendment—a change, clarification, deletion, or correction to an existing contract that all parties must agree with.
Read on to learn more about contract amendments, when you need one, how to make one, and contract amendments vs. addendums. We’ll also cover the best way to manage contract amendments.
What is a contract amendment?
Also known as contract variations, contract amendments are documents used to make a mutually agreed-upon change to a preexisting contract. Depending on your needs, an amendment can change the following:
- The length or term of a contract
- The fees or price for a service or product
- Parties’ duties and liabilities
- Shorten or extend periods like shipping or delivery times
Remember, though, that contract amendments can only be created after signing a contract. Changes made during contract negotiation aren’t contract amendments because there’s no existing contract.
Common questions about contract amendments
Before exploring the contract amendment creation process, you must have a clear understanding of what they are. Here are some common questions about these documents.
When do you need a contract amendment?
You need a contract amendment whenever you or the other party wants to change the terms of the agreement.
Once you’ve discussed the change with the other party, one of you will draft the changes, and both will sign them. For example, suppose your IT company buys laptops from a computer company. Two days after signing the purchase agreement, the company informs you that they must increase the prices of the laptops you bought. After a Zoom call where you both agree to the new price, they draft and send you the contract amendment, which you both sign.
Contract amendments can also help you avoid contract breaches when external circumstances have made it impossible for you to handle matters as the contract requires. For example, since the beginning of the COVID-19 pandemic, many companies have amended contracts to cover things like shorter working hours, staff shortages, supply shortages, and government guidelines for businesses.
Are contract amendments legally enforceable?
Yes. Contract amendments are fully enforceable and legally binding as long as they’re in writing and signed by all parties. They should also contain six essential contract elements:
A contract amendment will be legally binding when all these elements are present. Consider using digital contracting software to draft and manage every aspect.
What’s the difference between a contract amendment and a contract addendum?
Although they sound similar, contract amendments are distinct from contract addendums. The former changes actual contract terms while the latter keeps the original terms and adds new ones. As discussed above, a contract amendment would change the price of laptops you buy from a company, while a contract addendum adds more detail to your agreement by describing the model and make of the laptops you’re buying.
Companies can also use contract addendums to update an existing agreement when situations change. If someone decides to change a sales agreement, but not all of it, they can create an addendum outlining the changes instead of rewriting the agreement.
What’s the difference between a contract amendment and a contract appendix?
Contract amendments are also often confused with contract appendices. However, the two documents are distinct. Appendices typically appear at the end of an agreement and don’t affect or change the terms. Instead, they add extra information about terms or clauses. Unlike contract amendments and addendums, contract appendices don’t require signatures.
How to create a contract amendment
There are two main ways to amend your contract:
For minor changes
If you need to make only minor changes, such as spelling, names, and dates, handwrite the changes on the agreement. All parties will indicate assent by initialing next to the handwritten additions.
For major changes
If you need to make significant revisions to your contract, follow these steps:
1. Pinpoint what you want to change or add
Look at your contract and write down the parts you need to change. Create a new document defining:
- Sections to be changed
- Clauses to be added
- Portions and language to be removed
- Definitions to be updated
2. Date and title the new amendment
Next, add the current date and the title and date of the original agreement to the document. Here’s an example:
12 July 2022, Amendment to Sales Agreement dated 1 July 2022
3. Draft and describe the changes
Then, draft and describe the proposed changes through redlines and strikethroughs:
The parties agree to amend the Agreement dated 1 July 2022 by the following additions (indicated by strikethroughs) and deletions (underlined):
3(a). Acts of God. In the event either party is unable to perform its duties under the terms of this Agreement due to acts of God, interruption of utilities and electrical power, and transmission and equipment damage or failure reasonably beyond its control, such party will not be liable to the other for any losses resulting from such failure to perform. The parties shall notify each other within
36 hours 24 hours after the occurrence of an event described in this subsection.
Alternatively, you can draft and describe changes by replacing the entire clause:
Section 5(a) of the Agreement dated 1 July 2022 is entirely replaced with the following:
5(a). Governing Law. This Agreement will be governed by and construed in accordance with the laws of the state of Minnesota.
Once you’ve drafted the revisions, you need to describe the changes you’ve made:
This amendment removes Section 6(b), which reads: “All or any disputes arising out of the terms and conditions of this Agreement, including the validity and interpretation of the terms thereof and the respective obligations and rights of the Parties, will be settled through mutual discussion,” and replaces it with, “The parties (a) hereby unconditionally and irrevocably submit to the jurisdiction of the state courts of Minnesota and the jurisdiction of the United States District Court for the District of Minnesota for the purpose of any action, suit, or other proceeding based on or arising out of this Agreement and (b) agree not to commence any action, suit, or other proceeding based on or arising out of this Agreement except in the state courts of Minnesota or the United States District Court for the District of Minnesota.”
You also need to state that only the referenced section(s) will be replaced and that everything else in the original agreement remains the same:
All other conditions and terms not changed by this Amendment or prior Amendments remain in full force.
4. Finalize the changes
Invite the other party to your editing platform so they can review the document and propose changes before signing. Ensure that all parties sign and date the amendment. Notarize and use witnesses as needed. Once everything’s been signed, provide copies of the signed amendment to all parties.
The best way to manage contract amendments
Many companies use word processors like Microsoft Word to write, manage, and execute contract amendments.
However, the best way is through cutting-edge collaborative platforms. Unlike Word, these programs help legal teams manage contract amendments in one place. They also empower you to:
- Edit, track, and comment on changes: First-class collaborative platforms let you edit, comment on, and track proposed changes while staying connected to team members in real time. With just a few clicks, you can also accept and reject tracked changes made by other parties. Think Google Docs but DOCX-native.
- Use internal comments and @mentions: Like Google Docs, the best collaborative programs let you loop in colleagues for feedback in a matter of seconds. This speeds up the negotiation and execution process and ensures that counterparties look at the latest version of the agreement, not a version you emailed them three days ago. Without these platforms, bringing in colleagues would require saving an agreement, attaching it to an email, and waiting for counterparties’ responses.
- Embed negotiation guides directly into your contracting workflow: Finally, the right collaborative program lets you embed negotiation guides into your contracting workflow. Use these guides to educate and empower your team and create a road map for negotiating contracts. You can also use them to apply language that preserves your leverage, streamline review cycles, accelerate negotiations, and standardize clause substitutions.
Some collaborative platforms also boast other state-of-the-art features, including:
- Workflow designers that allow users to create and launch contracts and approval processes in minutes
- Artificial intelligence-powered data repositories that let you aggregate your contracts in one place
- Dashboards that empower you to identify contract bottlenecks and high-priority contracts
- Integrations for unlocking the full value of contracts across tools and teams
Use contract amendments to your advantage
Contracts don’t have to be set in stone. As with all things, they are prone to change. Failing to recognize the consequences of changes can lead to miscommunication, delays, and opportunity loss. That’s why parties should draft, execute, and manage contract amendments to prevent disputes, protect their interests, and maximize value.
- What is a contract amendment?
- Common questions about contract amendments
- How to create a contract amendment
- The best way to manage contract amendments
- Use contract amendments to your advantage
Want more content like this? Sign up for our monthly newsletter.
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.