Contract Drafting for the Modern Era: Principles and Pitfalls

The Problem with Template-Driven Drafting

Every organization has its "standard" contracts—accumulated over years, passed down through generations of legal counsel, carrying provisions that once made sense and many that never did. We've reviewed thousands of these contracts, and the patterns are consistent.

The typical commercial agreement contains clauses addressing risks the parties will never face, while missing protections for risks they encounter regularly. It includes defined terms that are never used and uses terms inconsistently that should be defined. It buries the commercial deal in pages of legal provisions, making it nearly impossible for businesspeople to verify that the contract reflects what they negotiated.

This isn't just aesthetically displeasing—it's operationally dangerous. When nobody reads contracts because they're unreadable, contracts don't guide behavior. When disputes arise, parties discover that the contract says something different from what they thought they'd agreed. Litigation ensues over language neither party actually intended.

The solution isn't better templates—it's better thinking. Every contract should start with three questions: What is each party trying to achieve? What could go wrong? How should we allocate those risks? The drafting follows from the answers.

Structure That Serves the Deal

A well-structured contract tells a story that any reader can follow: who the parties are, what they're trying to do together, what each will contribute, what each will receive, how long this lasts, and what happens when it ends or goes wrong.

Start with the commercial terms. In a supply agreement, the first substantive provisions should address what's being supplied, how much, at what price, and when. In a services agreement, begin with the scope of services, service levels, and fees. These are what the business negotiated—they should be prominent and clear.

Group related provisions logically. Performance obligations belong together. Remedies for breach belong together. Termination provisions belong together. Don't scatter related concepts across the document because that's how the template was organized.

Use plain language relentlessly. "Shall" and "will" mean the same thing—pick one and use it consistently. "Herein," "hereof," "hereinafter"—eliminate them. "Such" as an adjective—replace it with "that" or "the." Legal writing tradition created these flourishes; legal clarity requires abandoning them.

Keep sentences short. If a sentence exceeds 30 words, break it up. If a paragraph exceeds five sentences, consider whether it addresses one concept or several that should be separated.

Risk Allocation: The Heart of Contract Drafting

Every commercial relationship involves risks—the product might not work, the service might not meet expectations, markets might shift, regulations might change. The contract allocates these risks between the parties.

Effective risk allocation follows a principle: risks should sit with the party best able to control or insure against them. A supplier controls product quality—quality risk should sit with them. A buyer controls how they use the product—use-related risks should sit with them. Neither controls regulatory change—that risk needs explicit allocation.

The common mistake is demanding absolute protection. Unlimited liability clauses, uncapped indemnities, iron-clad representations—these sound good in negotiation but create bad contracts. The supplier who assumes unlimited liability prices that risk into their fee. The party that can't afford the risk can't provide the protection. Pushing too hard produces either inflated prices or unenforceable commitments.

Better approaches include caps tied to deal value, carve-outs for direct versus consequential damages, insurance requirements with specified coverage levels, and indemnity obligations limited to matters within a party's control. These allocate risk meaningfully while creating agreements that work commercially.

Be particularly careful with indemnity provisions. An indemnity is a promise to compensate for third-party claims. It's powerful protection when properly drafted, but we see indemnities that either don't cover the actual risks or are so broad they're uninsurable. Map your actual risk exposure before drafting indemnity language.

The IP and Data Provisions: Getting Technical Rights Right

Modern commercial agreements invariably involve intellectual property and data. Getting these provisions right requires understanding what you're actually exchanging and protecting.

Start by identifying what IP exists or will be created. Background IP—what each party brings to the relationship—typically stays with its owner, with license grants as needed. Foreground IP—what's created during the relationship—needs explicit allocation. Joint development creates joint IP, but joint ownership under Indian law means either party can exploit without accounting to the other. If that's not your intent, draft differently.

License grants require precision. Is the license exclusive or non-exclusive? Perpetual or term-limited? Transferable or personal? Can the licensee sublicense? Each choice has commercial implications. Drafting that leaves these questions ambiguous invites disputes.

Data provisions have become equally important. Who owns the data generated through the relationship? What can each party do with it? How must it be protected? These questions arise in every SaaS agreement, every outsourcing arrangement, every partnership that involves data sharing. The answers should be negotiated explicitly, not assumed.

A common failure: treating data protection as solely a compliance matter. Yes, DPDPA compliance is required. But the commercial question—what business use can we make of data—is separate from the compliance question. Address both.

Termination and Exit: Planning for the End

Relationships end. Sometimes amicably, sometimes not. The contract should address both scenarios with equal care.

Termination for convenience gives a party the right to exit without breach by the other. This flexibility has value but comes with obligations—typically notice periods and sometimes termination fees. Don't accept termination for convenience provisions that give the other party free options at your expense.

Termination for cause addresses breach scenarios. Define what constitutes breach, what cure rights exist, and what the termination process requires. Vague breach definitions invite disputes; clear ones enable enforcement or resolution.

Post-termination obligations matter enormously but often receive scant drafting attention. What happens to work in progress? What transition assistance is required? What survives termination—confidentiality, IP licenses, indemnities? These questions become urgent when relationships end; answering them in advance is far easier than negotiating under pressure.

Survival provisions deserve explicit treatment. Don't rely on the default rule that obligations "by their nature" survive—that test is uncertain. Identify which provisions survive and for how long. Confidentiality might survive indefinitely; limitation of liability might survive the statute of limitations period; other provisions might have no post-termination relevance.

Dispute Resolution: Choosing Your Forum

How disputes will be resolved is among the most important contract provisions and among the most neglected. Parties focus on the deal, assuming they'll never fight. When they do fight, the dispute resolution clause determines their options.

Indian courts offer the advantage of familiarity and established procedure. They also involve delays that can span years, procedural complexity, and limited ability to preserve confidentiality. For straightforward commercial disputes where time isn't critical, litigation may be appropriate.

Arbitration offers speed, party selection of adjudicators, procedural flexibility, and confidentiality. Indian arbitration law has improved substantially—the 2015 and 2019 amendments addressed many historic concerns. For significant commercial disputes, especially those involving technical subject matter, arbitration often serves parties better.

But arbitration clauses require careful drafting. Specify the seat of arbitration (which determines the supervising court), the governing rules, the number of arbitrators, and the appointment mechanism. Institutional arbitration (under ICC, SIAC, or domestic bodies) provides administrative support; ad-hoc arbitration requires parties to self-administer. Each has advantages depending on dispute value and complexity.

Hybrid mechanisms—escalation through negotiation, then mediation, then arbitration—can work well for relationships the parties want to preserve. But the escalation triggers and timelines need clear definition; vague requirements to "negotiate in good faith" before arbitration invite procedural challenges about whether preconditions were satisfied.