Life Cycle of a Contract: Everything You Need to Know
The life cycle of a contract is unique depending on the type of contract and parties involved.3 min read updated on February 01, 2023
The life cycle of a contract is unique depending on the type of contract and parties involved. It depends wholly on what type of work is being performed under the contract, as some contracts are for a very limited amount of time, whereas others could last for a much longer period of time.
Regardless, every contract will have a life cycle. The contract will be drafted, negotiated, and approved by both parties. The performance under the contract will then be executed in accordance with the contractual provisions. The contract itself will also identify a specific time frame, which results in the life cycle of the entire contract. If either party breaches the contract, the life cycle will be disrupted, which could result in a breach of contract claim.
A contract is an agreement between two or more parties, whereby one or both parties have obligations to one another. The duties, responsibilities, and obligations of the parties will be identified in the actual written contract. Every contract must have an offer, acceptance, and consideration. The offer must be given to the other party clearly identifying what the offer is. The receiving party must then accept the offer as is. If the receiving party accepts the offer but provides additional conditions, this is considered a counter-offer. After the acceptance, the parties must offer consideration to one another. The consideration might be a nominal amount of $1, or simply an oral promise to act under the contract.
Express vs. Implied Provisions
The provisions identified in the contract might be express or implied. An express provision is one that is actually written in the contract, whereas implied provisions might be accepted, particularly for products worth more than $500. Agreements will also have optional provisions, depending on the type of contract. These could be provisions relating specifically to the industry in which the parties operate, legal conditions, etc.
Contract Life Cycle Management
The life cycle of every contract begins with drafting of the agreement. Thereafter, the parties will enter the negotiation stage, which will consist of what they expect to be done under the contract. This can include the following conversations:
1.Discussion of payment, i.e., how and when payment will be made
2.Scope of the work to be performed
3.What happens if an unforeseen circumstance arises
4.What happens in the event of a legal dispute
Regarding payment, the contract will need to specify how the receiving party will be paid, when the payment will occur, and how payment will be made. For example, Company B might be performing services for Company A, and request that payment be made in monthly installments during the six-month life cycle of the project. As requested by Company B, payment should be made on the 1st of the month in the amount of $100,000, and it must be deposited into Company B’s bank account maintained at a specific bank. If Company A agrees to this requirement, then the contract will explicitly state this information in it, so that both parties fully understand their rights and responsibilities when it comes to payment.
Managing the life cycle is particularly important regarding the scope of the work to be performed. The scope will involve what must be done, how it must be done, and the steps that must be taken while performing the work. For example, in a construction contract, there might be a requirement for Company B, the contractor, to provide Company A with bi-weekly updates on how the work is coming along. This will help prevent additional overhead costs that might be required if additional materials are to be purchased in order to get the job done.
Including what happens in an unforeseen circumstance is also an important step in managing the life cycle of the contract. An example of this would be if Company B is constructing a home for an individual. If an unforeseen weather event occurs, i.e., hurricane or tornado, this will cause a significant delay in the construction of the home. Therefore, management of such circumstances is important.
If a legal dispute arises, the parties will need to manage the contract appropriately. Most contracts include a provision for legal issues, indicating that the parties will enter arbitration to mitigate the issue. The venue will also be noted in the contract, particularly if the parties live in different states.
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