Contract managers come from all walks of life. Some are attorneys, some have paralegal training, and some have worked in legal departments. These employees may already have a firm grasp of legal jargon.
Other contract managers may work their way into the role without having received formal legal training. In fact, the contract management profession is filled with top-notch contract managers with backgrounds in procurement, purchasing, administration, and a variety of departments all across an enterprise.
Whatever one’s background, there are many contract management legal terms and concepts with which every contract manager should be familiar. We will discuss some of them in this article.
Contract Management Legal Terms Associated with the Contracting Process
These terms describe the primary steps the parties to a proposed contract must undertake to produce a valid, enforceable contract.
- Offer – “Offer” refers to one party’s communication to another party of a proposal to enter into a contract. In most instances, the offer can be verbal or written, but it must be more than an attempt to open negotiations. While offers are usually easy to identify, complications occasionally arise when the alleged offeror contends that there was no intention to extend a formal offer to create a true legal obligation. (For a related term, see Best and Final Offer).
- Acceptance – “Acceptance” refers to the offeree’s communication of agreement to the terms of the offer. If the offer requires a special kind of acceptance, then the acceptance must meet the requirements of the offer to be effective. Additionally, the acceptance must be communicated to the offeror. A private, uncommunicated thought or intention is insufficient.
- Consideration – A contract is enforceable only if it contains a bargained-for exchange between the parties. This exchange often consists of promises made by each party. Consideration can also consist of money or performance.
- Agreement and Contract – These terms are often used interchangeably, but there’s an important distinction. A contract is an agreement that is legally enforceable – in other words, it meets all the formalities to be a legal contract. Agreements are essentially promises that are not legally enforceable.
Contract Management Legal Terms Associated with the Validity and Enforceability of a Contract
When parties enter into a contract, the hope is that everyone will profit from the arrangement. Unfortunately, sometimes one or more parties fail to live up to their side of the bargain. The following terms are often encountered in efforts to enforce a contract.
- Breach – Breach of a contract refers to a party’s failure to comply with the requirements of the contract without a valid legal excuse. The breach must be material to give rise to a legal action.
- Statute of Frauds - The Statute of Frauds is one of the most important concepts with which participants in the contracting process must be familiar. Based upon an old English statute, the term “Statute of Frauds” now refers to all laws that require various types of contracts to be in writing. These laws can vary by state. Failure to comply with the Statute of Frauds can render a contract unenforceable.
- Capacity – For a contract to be enforceable, the parties to the contract must have the legal competence, called capacity, to enter into a contract. Age and mental impairment are examples. Additionally, issues of capacity can arise when one person signs a contract on behalf of another person.
Contract Management Legal Terms Related to Responsibilities and Financial Liability
Many legal terms and clauses create continuing obligations for contract managers who must monitor the provisions. Additionally, some contract terms must be carefully considered because they can result in great financial liability to the company.
- Conditions of the Contract – A condition of the contract sometimes simply refers to a term of the contract with which one or both parties must comply. However, it can also refer to uncertain future events which will affect the obligations in the contract.
- Benchmarking Clause – Benchmarking clauses provide for periodic review of certain contractual terms against agreed-upon benchmark levels. Negotiating the frequency of review and who will conduct the review can be challenging issues.
- Limitation of Liability Clause – A limitation of liability clause effectively limits (or caps) the damages one party can recover from the other for breach of the contract. Courts will sometimes refuse to uphold limitation of liability clauses if they violate certain legal requirements. Thus, this issue should be reviewed with an attorney.
- Indemnification – In an indemnity clause, one contracting party agrees to be responsible for financial liability the second contracting party incurs with parties outside the contract. These clauses can shift a great degree of risk from one party to the other and must be agreed to with great care.
At ContractSafe, we appreciate all the moving parts that contract managers must follow! Understanding legal terminology is only the tip of the iceberg. There can be thousands of contracts with thousands of provisions which must be monitored daily. That’s why we make ContractSafe contract management software so easy to implement, so easy to understand, and so easy to use. In particular, we make it easy to track whatever clauses or terms you want...since we all know they vary by company and even by division!By leveraging the power of OCR, cloud technology, custom fields, and artificial intelligence, we make it easy to safely store, search, monitor, and manage all of your contracts. Start your free trial today!