Execution

Each contract-making process is distinctive. This makes the duration to come to the execution stage vary. Usually, a simple business deal requires a shorter time to reach the step, as this involves a smaller number of parties. A complex and larger business deal value requires a greater number of stakeholders. This leads to a longer time, which is necessary for sealing the deal.

What is execution in a contract?

Execution in a contract is the stage of the entire contract-making process, in which all sides approve and sign all terms and conditions formally. Therefore, the parties start performing their tasks and roles as agreed. The duties vary from one party to another. The client, for example, has a job to pay for the services or products on time.

The vendors must fulfil all requirements for each item or service that they have to provide. Besides, they deliver the products based on the schedules. Failing to do the job will result in multiple sanctions. These are also included in the business deal. The penalties can be in the form of paying a certain fee. In the worst case, the penalty leads to imprisonment.

In short, execution finalises the agreement. The signature from each party tells its commitment to the deal. Inserting legal risks in the contract clauses offers one particular benefit. All of the stakeholders will work their best to meet the obligations because, otherwise, they will have to pay the price by not fulfilling the targets.

Best practices of contract execution

Generally, efficient contract execution comes in five main steps. The stages revolve around drafting, approving, signing, agreeing on the date of contract operation, and storing all completed tasks. Applying the stages offers some benefits. The first is smoothing communications among all stakeholders. In this regard, they know how to ask for anything regarding the contract thanks to the mutual trust that arises among them.

The second links to avoiding ambiguities. As the contract’s terms are all clear, the parties are all aware of the jobs, legal risks, and rights in the business deal. Their duties won’t overlap, and they can deliver the job qualities that the other parties hope for. So, what and how do they achieve their goals? This is the list.

Drafting and reviewing

The first step in contract execution is allowing all parties to recheck and discuss all terms and conditions before signing. They look at the clauses for one last time and refine or change when necessary. This will result in the final draft, which becomes the contract content to enter legal processing.

Signing

All parties sign the agreement page by page. Whether physical or electronic, the signatures are legally binding. Each of the stakeholders is usually represented by some officers, such as contract managers or CEOs. Don’t forget to include the names of the employees who signed the document. This is to indicate their roles in the business deal and the firms they represent.

Setting up the effective date

This is the date when the contract becomes valid. All stakeholders start working on fulfilling their jobs according to the date. At the same time, this is  when the contract is legally binding. In some cases, the effective and the execution date are the same. In other business contracts, the effective and execution dates are different. The execution date means the time when all parties sign the contract. The effective date refers to when the contract starts to be enforceable and legally binding. 

Keeping and handling executed contracts

The execution stage includes storing all contracts that have been performed. These should be in one centralised place to allow all parties to access them easily. By accessing the files, they can use them according to their goals, such as legal compliance, auditing, and dispute prevention. This is part of an effective contract management system that makes the deal process more efficient.

Legal implications of a contract execution

A business agreement explains the legal risks that relate to the regulations and standards of the deal. As mentioned, all stakeholders previously agreed upon the consequences during negotiations. In this case, the non-breaching party can sue the other side due to the failure of target fulfilment. The non-breaching side feels the negative action harms its business operations.

Thus, the non-breaching side can bring the case to the court. It seeks a remedy to cover the damage it suffers. The remedy type is diverse, from paying a certain amount of money to seizing assets belonging to the breaching party. Not a few cases end up in imprisonment. This clause should also be mentioned during the execution stage.

Common issues in a contract execution

Like in other stages within a contract cycle, some issues often arise at the execution phase. The first issue relates to signatures. It can be that the signatures are incomplete, and one or more parties don't sign the contract. The other case is that the person signing the business deal doesn’t have legal authority.

Those may seem minor, but they lead to prolonged contract making because the stakeholders have to fix and clarify first before proceeding. Besides, the absence of witnesses or notarisation can make the contract invalid in some cases. This problem is also quite common at the execution stage. The last relates to electronic signatures, which are popular today because most business deals use online platforms.

Yet, not all jurisdictions or courts accept this signature type. As such, check the type that the relevant jurisdictions accept. Forcing the use of a signature type that isn’t acceptable will reduce the enforceability of the business deal. Usually, contract managers or the legal team from each side take charge of these issues. Their keen eyes on the details will rescue all parties from major troubles down the road.