structure of a contract

In contract law, operative provisions are the terms of the contract which legally bind the parties.

Structure of a Contract

The structure of a traditionally drafted contract is:

1. Parties: Names of the parties, with their addresses. If a party is incorporated, ideally the company (or LLP or the like) number, registered address and country of incorporation;
2. Recitals: The background to the contract, which typically includes a statement of the industry or trade of the each of the parties or the services each of them provide and that they intend to be bound by the terms which follow.
   In the vast majority of cases, the words in the recitals are not legally binding. However where there is ambiguity in the terms set out in the operative provisions, a court may attempt to resolve that ambiguity by reference to the words in the Recitals;
3. Operative provisions: This section sets out the warranties and conditions of contract. It is the main part of the contract.
   These are the terms which operate to bind the parties to the contract
4. Testimonium: The words just above the place where the parties sign, which commence with words such as "In witness thereof..." or "Signed on the date first abovementioned:";
5. Execution section: The place the parties sign.
6. Schedules or Annexures: Documents forming part of the contract which deal with specific or specialised subject matter. For instance, a services agreement may break out the terms of a service level agreement into a schedule so that it can be readily swapped with different versions.

A more Modern Structure for Contracts

This formal structure of contracts is generally no longer seen as suitable for many businesses and indeed many types of contracts. Businesses are aware that the time for contract audits, contract management and legal expense can be dramatically reduced by re-structuring contractual documentation. They also tend to be shorter contracts. Contractually binding documents may not even be presented to the other party for signing, and usually do not need to be provided the attention of the party is directed to the existence of those documents.

The re-modelling of the presentation of business contracts usually accelerates the contract lifecycle between closing of a sale and signing agreed terms of contract.

In this way, the administrative overhead of contracts is greatly diminished.