Contract Modification

Introduction

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The article focuses on clarifying and elaborating Contract Modification subject. Tackling contracts subject in general is preferred prior to moving to the main subject body.

A contract, as known to a lot of people, it is an agreement, (could be written or verbal) between two (2) or more parties and consequently that will have a legal relation and obligations between all parties.

In other simple words, contract is offer and acceptance. We as humans, practicing contracts in our life on daily basis. Believe it or not, to the extent that it might be once or twice or even trice every day at least but till now with that frequent practice some people still don’t realize that they are doing so and has legal obligation on them or even sometimes not having a full understanding of the basics of contracts. Herewith next sample of different types of contracts that are practiced frequently by most of us but not limited to.

·?Marriage contract (life related).

·?Employment contract (career related).

·?Terms and conditions on our debit and credit cards (life and back related).

·?Terms and conditions once signing up into any application on the mobile phone (life and business related).

·?Cinema tickets (entertainment related).

·?Aviation or airways tickets (leisure and business related).

·?Hotel booking (leisure and business related).

·?Construction contracts (development and business related).

In this article, the focus is on the construction and service contracts that are related to construction projects or term contracts that are varying from very small-scale projects such as small residential houses up to extremely huge-scale projects such as skyscrapers, shopping malls, dams, plants, factories, etc.

Contract is an essential element and forms the base of any project once feasibility study is over, allocating funds, design drawings (including architectural and structural details). Why it is essential or the most important in my opinion, because it is a mechanism that enables all parties to sit together and shape their need or proposal in a legal form, set liabilities, maintain each party’s right, and finally enforceable by law.

Furthermore, in my opinion, the success of any project considering no financial obstacles or crisis, proper feasibility study is done, no external interference such as politics or pandemics, the “CONTRACT” is the next step base moving forward to success provided the below factors are met: -

·?Clearness. All contract documents such as scope, drawings, specifications, etc. shall be clear to avoid any misunderstanding, confusions, etc. which may take all parties to a financial consequence or even disputes.

·?Fairness. Being fair in setting terms, conditions, etc. to maintain comfort ambient between all parties and work without pressure.

·?Strongness. Strong contract to be drafted to ensure proper line with no voids or missing clauses.

·?Legal Contract. Contract shall be legally in written form reviewed by all parties including layers prior to signing.

Moreover, contracts draw borders between each party, relations between different parties, liabilities, and obligations that will make and keep the track clear and easy to move forward for all parties involved.

After this brief preface of contracts, which till some extent will prepare the reader to be in mode prior to the subject.

Contract Modification

Contract modification from its terminology gives the indication and focus of certain section(s), mainly, scope, rates, terms, conditions, etc. Contract modification in principle, is the process of modifying or altering certain section(s) as highlighted earlier in this paragraph of a contract. Such modification will drag the contract performance or execution to a different direction compared to the initial direction basis of the modification due to certain circumstances.

The main criteria is modifying the contract through its main body (section(s) highlighted in above paragraph) which will have the superdense on the original section(s) while the contract period will remain the same (unchanged).

The process of contract modification starts from a need from one party to modify the contract followed by mutual discussion and agreement.

Mostly, a modification of a contract clause usually forms part of the conditions of contract to serve such need if required in the future during the term of the contract.

Once initial acceptance is made, a thorough discussion between parties takes place for the section(s) or cluse(s) to be modified to ensure that all parties will have mutual positive return and beneficial to all. That return could be in the form of financial return, or maintain relations, or securing upcoming projects or contracts, etc.

It is very important to consult a legal advisor or a lawyer if found needed to assess or evaluate the positives and negatives of the contract modification and its consequences prior to any further steps. Such step is very important to identify and determine the risks, challenges, gray areas to enable either parties to mitigate or even eliminate such ambiguities.

Finally, an agreement of contract modification is translated on official papers stating the agreed modification. Such an agreement can be drafted as a new contract agreement, or addendum, or even through a fax. All such agreements shall be documented as preference number 1 to avoid future disputes or misunderstanding.

Moreover, it is very important to understand when and why is the need to modify a contract. Here below some of the points: -

·?Relationship. As much as relationship is improved and trust grows more and more between involved parties, certain part(s) might be modified. Usually under this need, terms and conditions will be modified to reflect more flexibility, softer and forgiveness.

·?Change in terms and conditions. Changing essential terms or conditions to accommodate certain requirement.

·?Failure in performing certain tasks. Failure to fulfill scope or obligation.

·?Correction of certain error. Discovering some mistakes after the validity of a contract such typo errors, arithmetic errors, miscalculations, etc.

·?Common need. In certain circumstances both or all parties would like to modify certain clauses or sections of the contract to extend business relationship, etc.

·?Unforeseen circumstances. Could be external or internal factors having an impact on the performance or execution of the contract such as natural disasters, financial crisis, global political change, etc.

·?Regulatory, decrees and law. Such change or new issues will necessitate modification to ensure legal compliance.

?Conclusion: Contract modification is the modification of certain part(s) of a contract maintaining the same duration of the contract.

?Terms Vs Conditions

In principle, both terms and conditions are set into the contract to protect the right of each party in that contract as a common factor. They are forming essential part of any contract that structure and take advantage of knowing contractual rights, obligations, limitations, etc. of each party. Terms and conditions role is to set border and limits of each party assignments and responsibilities.

If these terms and conditions are set clearly, comprehensively, agreed on and understood by all parties, then we can consider that the purpose of the terms and conditions is achieved. The purpose is to maintain, protect and to give guidance all parties including court.

Above paragraphs explains the importance and common factor(s) between terms and conditions, however, certain differences in role and functionality of each terminology.

“Terms” can be referred to or covering a broad aspect such as, but not limited to, relations between parties, responsibilities, timelines, so on and so forth. Below are some examples: -

·?General framework governing relationships between all parties.

·?Timelines.

·?Payment method or layout.

·?Role of each party.

·?Duties and responsibilities.

·?Dispute resolution procedure.

·?Guarantees and warranties.

·?Insurance requirements and policies.

·?Road map of rights and obligations of each party i.e. client, contractor, subcontractor, consultant, etc.

·?Adherence to local authorities’ law, rules, regulations and codes.

·?Penalties for delays.

·?Procedures for variations or change orders.

Moreover, “conditions” are specific provisions that must be met to keep the contract valid. Conditions are mainly referring to specific actions, events, milestones that must be met. Below are some examples: -

·?Obtaining planning permissions.

·?Obtaining building permissions.

·?Obtaining environmental permissions.

All above is considered “Condition Precedent” and to be fulfilled and obtained prior to commencing of the work or prior to contract gets into effect. If not fulfilled, contract is considered void. Usually, it is the responsibility of one part to fulfill the condition(s).

·?Maintaining insurance coverage throughout the project cycle.

·?Compliance to the laws, rules and regulations of the state such as environmental issues.

·?Compliance to safety rules and regulations.

·?Timely payments to subcontractors.

All above is considered “Condition Subsequent”, to be avoided and not to happen during the lifetime of the contract. Once it is maintained, contract remains valid and effective till completion. If it happens and take place, it terminates or modifies the contract. Could happen from either party or external agency (most likely out of the parties’ control).

Contract Modifications Vs Contract Amendments Vs Contract Addendum

In principle both directions are common in altering or changing certain sections or clauses of a contract but each one of them having its own formality, way and nature. In either way, all parties shall have a thorough discussion, understanding and agree on such alterations and changes.

Moreover, a contract addendum is an attachment that adds or clarifies a certain term to a signed contract. However, such addendums are not necessarily issued to a signed contract but usually issued prior to signing a contract. Both parties shall sign or at least one party shall acknowledge the other. The information in the addendum is a supplementary and not core or major change. In other words, contract addendum does not modify any part of a contract rather than it furnish or extend such part.

On the other hand, contract amendment is a modification of an existing or signed contract. Amendments mechanism is used to make major or substantial changes including deletion or addition of certain part(s) or elements in a signed or executed contract. Both parties shall sign the amendment or sometimes new contract agreement noting that such changes or modification(s) will supersede the original part.

What governs when to use addendum of amendment is the nature of change itself. If it is substantial and has major change on core parts or terms, then the decision is amendment. If the change is minor and will not have any impact on the core parts or terms, then addendum is the appropriate decision.