Ensuring compliance in contracts - fear>love?

Bhay Bin Hoye na Preeti

?? ???? ??? ? ???????is one of the most relevant and commanding verses extracted from the Great Epic Ramayana.

We can roughly translate this to mean “There is no love without fear”.

What does it mean in context of contracts?

One of the most common questions in my workshops and courses on Contract Drafting is How do we ensure compliance of the contract terms?

The background to this question is that, by and large, the parties are in a bon homie stage while discussing, negotiating and executing a contract. They may not envisage or care about the full scope of obligations falling upon them under the contract.

Sometimes, in desperation to acquire more business, capacity, market share or simply to get advance under the contract, a party may agree to anything and sign on the dotted line.

Post execution, however, such parties realise the exact nature and extent of their obligations and are reluctant to perform their obligations. ??

There can be multiple other reasons for non-compliance by a party – some of which can be attributed to the obligated party’s conduct – otherwise, it could be due to external factors.

While other factors may also be a sub-set of ‘force majeure’ whereunder the obligated party may get away from performance, there should be no scope to leave a party at the mercy of the other, voluntarily non-performing party.

So we come back to the question of compliance.

One of the ways to ensure compliance and adherence to committed terms is to provide what I call dis-incentive to violate.

Prescribe consequences against each violation, non-adherence, negligence, breach and so on. The consequences should be serious and deterrent enough. These should really scare parties about non-adherence. They should get a feel that you / your client mean business, talk sense and are damn serious about everything, can not be taken for a ride.

Providing peanuts as penalty (say Rs. 500 per day as penalty for delay in a project whose consideration is Rs. 5 million) a will not prompt a party to ensure 100% compliance. On the other hand, if you provide charging thrice the normal rent for any overstay by a client after termination / expiry of lease, the lessee better be particular about vacating at the earliest. Similarly, a not too subtle, likely threat of termination or legal recourse for serious breaches may be well manifested throughout the contract. ??

Thus, the bottom line is - unless the parties are serious, committed and yet scared of each other, no contract will work.

Happy contracting.?