Everything You Need to Know About Contract Amendments

To amend or not to amend? It’s a question you might find yourself asking when a contract is no longer effectively or accurately informing a relationship between your organization and another. 

Much like any other relationship in your life, the circumstances of your partnership with another organization may change over time. As such, the legal document that holds each of you accountable needs to reflect this change. 

Quick, effective contract amendments will help you avoid unnecessary conflict and expenditure in the future. Implementing a digitized contract processing software like SignHouse will support this process. Digital contract management keeps communication clear and concise while ensuring your documents’ security. 

In this article, we’ll discuss the types of contract amendments, why they’re an important factor in contract management, and how you can implement contract amendments effectively. 

What Is an Amendment?

An amendment to a contract is a mutually agreed upon change to its contents. This change can be anything and must be specific as all affected parties will have to sign the newly amended, legally binding contract.  

Amendments can come about for several reasons. However, the two main ones that call for the original contract to be changed are:

1. Something was forgotten in the finalization of the original contract that now must be added

2. An unexpected requirement that has become apparent after the contract began needs to be formally acknowledged

Common types of contract amendments

• To extend or shorten the contract’s length (the “term”)

If the relationship defined by a current contract between two organizations is going well, both parties may want to extend the contract’s term, and continue to build this relationship. Another reason for extension may be because more time than anticipated is required to achieve the contract’s outlined purpose

• To change the price or fees of a product or service

During the term of the contract, market rates may change. As such, the prices and fees stated in the contract may need to be adjusted accordingly to reflect the market rate. This will help ensure no party comes in at an unexpected, significant loss.

• To change either party’s liabilities

If changes to either primary (unconditional) or secondary (conditional) liability need to be documented, a contract amendment must occur to reflect this. This protects each party from unnecessary liability and potential financial responsibility, if something goes wrong. 

• To extend or shorten periods of specific terms, e.g. delivery or shipping timelines

In an original contract, parties will have agreed to timelines to meet specific objectives. However, these timelines may need to shift due to circumstances out of the responsible party’s control, such as the state of the market and current average shipment delays. 

Why Are Amendments Necessary?

There are numerous reasons why an amendment to a contract may need to happen. What’s important is that all amendments are accurate and keep the contract reflective of the current partnership between your organization and another. Common reasons for contract amendments include:

• Avoiding or Fixing Possible Volatile Situations 

Sometimes, there can be misunderstandings between parties that the current contract does not clearly address. These misunderstandings can cause frustration and, in some cases, lead to accusations of a contract breach. 

Before the situation becomes more volatile (or hostile), both parties must sit down and discuss the problem. Once a new understanding has been reached, the contract needs to be amended to include these new details.

• To Improve a Contract’s Effectiveness

A contract should be a direct reflection of the current relationship between parties and the industry market. If these variables change, the current contract may need to undergo amendments to stay valid and effective. 

These variables can include changes to either organization’s business practices, changes in the current market’s supply and demand, and shipment delays. Amending contracts to acknowledge these changes will minimize unrealistic expectations and maintain the contract’s effectiveness.

• Contract Extension

Contracts can’t last forever. Hence, all contracts are written to be valid for a certain length of time. This allows for parties to part ways amicably at the end of a business transaction, or choose to extend if there’s a benefit for both parties. 

Sometimes, a contract may also need to be extended due to the growth of a project, or an unexpected delay. Whatever the circumstance of a contract extension, both parties need to agree to an extension and sign the renewed contract. 

How to Amend a Contract

Here is a basic formula your organization can adopt when approaching contract amendments. It’s important to note here contract amendments will be individual to your business relationship’s circumstances, so be sure to understand the nuances of your situation before signing! 

Step 1: Discuss the Amendment

At this stage, one or both parties have identified that something needs to be changed. Now is the time to discuss your proposed amendment with the other party/ies, and iron out the details. Be clear, and concise, and make sure the proposed amendment is directly addressing your goal outcome. 

Step 2: Notify the other Party

Consider this stage like a mini-contract negotiation. Approach the proposed amendment with respect and be prepared to offer some wiggle room around your ideal outcome. This often leads to the other party/s being more willing to meet you halfway, or even agree to your amendments without much pushback!

However the negotiations go, it’s important to remember that all parties must agree on the modification before the next step can occur. 

Step 3: Draft the Amendment

Be specific and clear about which sections you are changing, and the specific terms and conditions that will be affected by the amendment. During this step, you need to specify and agree on a specific date these amendments will come into effect. 

A great way to track and approve drafted changes to the contract in real-time is by adopting digital contract management software like SignHouse. Software like this will minimize the possibility of mistakes, and help you reach the signing step of the amendment process more efficiently. 

Step 4: Review and Proofread the Approved Changes

Now that you’ve drafted the proposed changes, it’s time to incorporate these changes in the language of the specific sections in the original contract that will be affected. You will then need to provide written affirmation that the attached amendments are now a part of the original contract.

Step 5: Sign your amendment using SignHouse.

The fastest and most efficient way to sign your newly amended contract is by electronically signing your document using SignHouse. All authorized signatories can sign and date the document with their eSignatures, keeping the process secure and streamlined.

If any signing party does not have an e-signature, they can create one for free using SignHouse’s free eSignature generator. 

Confident to Make Amendments to Your Contracts?

Implementing amendments to your contracts is a core component of your organization’s contract management process. Whether it’s to extend, change a deliverable, or clarify a misunderstanding, all amendments should be done quickly, accurately, and fairly. This ensures the contract maintains its effectiveness, and your relationship with the other party stays as positive as possible. 

A great way to support the amendment and signing process of your new contracts is to implement a digitized contracting process. With digital contract software like SignHouse, your contract amendments will be secure and the e-signing process seamless!