Drafting and reviewing contracts

What is happening

The counterparty has sent its own thirty-page draft and expects signature by Friday. The project manager is sure the terms are standard, while the finance director wants to know what happens on late payment, a failed delivery or acceptance with defects noted.

For years the company has used a template downloaded when it started out, and it long ago stopped reflecting how deliveries, acceptance and payments actually work. The first dispute showed that in court the contract hinders rather than helps.

A transaction new to the company: a large construction contract, a software licence, a supply deal with a foreign party, a joint project. There is no template, the terms are many and the cost of a mistake is high.

What the law says

• The Civil Code is built on freedom of contract: the parties set the terms, except where mandatory rules apply. Whatever the contract leaves out, the court fills with the Code's default rules, and not necessarily to your advantage.
• A contract is concluded once all essential terms are agreed: the subject matter, and terms designated as essential by law or by either party. In a construction contract, for instance, the time for completing the work is essential.
• Terms are interpreted first by the literal meaning of the words; where that is not enough, the court looks at the purpose of the contract, correspondence and the parties' course of dealing. Courts tend to resolve ambiguities against the party that drafted them.
• The Civil Code provides tools for allocating risk: contractual penalties, limitation of liability, representations, indemnities for losses, deposits and retention. They work only if worded precisely, and a clearly disproportionate penalty may be reduced by the court.
• Wording on price, VAT and payment affects the tax consequences for both parties under the Tax Code, so we agree the financial provisions with your accounts team.
• Where the contract results from procurement by a state or municipal customer or a state-owned company, it is governed by Federal Law No. 44-FZ of 5 April 2013 "On the Contract System for Procurement of Goods, Works and Services for State and Municipal Needs" or Federal Law No. 223-FZ of 18 July 2011 "On Procurement of Goods, Works and Services by Certain Types of Legal Entities", and the freedom to change terms is significantly restricted.

What we do

• We establish the economics of the deal: who does what, when payment is made, how the result is accepted and where your main risks lie.
• We draft the contract from scratch or rework your template to match how the deal is actually performed.
• We review the counterparty's draft and produce a comments table: clause, risk, proposed wording, priority.
• We check the counterparty using public sources: registration, the signatory's authority, litigation history and warning signs.
• We prepare the accompanying documents: specifications, acceptance forms, powers of attorney, non-disclosure agreements.
• We walk the director and the staff responsible through the result: what has changed and what to watch for in performance.

What we will need from you

• A description of the deal in your own words: subject matter, timing, payment terms and what is critical for you.
• The counterparty's draft or your current template.
• Correspondence in which the commercial terms have already been agreed.
• The counterparty's details for the background check.
• The deadline: when the contract needs to be signed.