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TECHNOLOGY TRANSACTIONS, OUTSOURCING, AND COMMERCIAL CONTRACTS NEWS FOR LAWYERS AND SOURCING PROFESSIONALS
Contract Corner

Changes to complex commercial contracts are inevitable. These contracts, such as large outsourcing agreements, typically include a master services agreement (MSA) and a high number of exhibits and attachments describing the scope, performance standards, financials, and other contractual requirements in detail. Some deals can end up containing over 50–75 documents (or more!) in total. Given their strategic importance, these agreements often require numerous amendments as the relationship evolves over time and changes need to be formally documented.

With the sheer number of contract documents and amendments, a sound governance practice is to establish a strong amendment process that helps organize and keep track of the changing documents so that anyone “picking up” the contract at a future date can accurately follow the history and be confident they have the latest version of every document.

This Contract Corner includes tips for adopting and achieving a well-organized and efficient amendment process for complex agreements.

Tip #1 – Use a Consistent Numbering Scheme for Amendments

A simple and effective way to keep amendments organized is to number them in chronological order. This may seem obvious, but sometimes a different format is used, such as dates, that requires extra effort to track as the number of amendments grows. For example, “Amendment No. 1” and “Amendment No. 2” is a much cleaner naming format that is easier to follow than “Amendment dated September 23, 2020” and “Amendment dated December 22, 2020.”

Tip #2 – Include a List of Amendments in an Appendix

Another efficient organizational technique is to include an appendix in each amendment that lists out all prior amendments to date. This appendix can be referenced in the recitals of the amendment and assists in keeping an up-to-date list of all amendments. For instance, when reviewing a hypothetical Amendment No. 10 to a contract, the appendix would helpfully list out previous amendments by number and date, such as “Amendment No. 1, dated as of September 23, 2020” and “Amendment No. 2, dated as of December 22, 2020”, all the way up to Amendment No. 9.

Tip #3 – Add a Table of Exhibits that Tracks Amendment History

A more detailed tracking method is to include in each amendment a table of all exhibits that have been changed or replaced to date, along with the corresponding amendment numbers. This table acts as a cumulative, historical record of each time a contract document has been amended. If used from the first amendment onward, this table can be supplemented during each amendment so that the latest amendment always has the full history. We have found this tool to be particularly helpful in keeping an accurate record of how an agreement has been amended over time.

Tip #4 – Describe the Purpose or Context of the Amendment

The first three tips focused on organizational tactics for amendments. It is also a good practice to include brief provisions in each amendment describing the purpose or context so future readers have a better understanding of why the amendment was executed. For example, the amendment might say that the parties have agreed to add services that were previously out of scope and, as a result, the exhibits for the scope of work, service levels, pricing and approved subcontractors are all amended to reflect the additional services.

Tip #5 – Include Redlines in the Contract File

After each amendment is finalized and executed, it is critical to immediately update the master contract database. Along with replacing the master “clean” versions of each amended document in the database, it is also a good idea to include redlines showing the changes that were made to the immediately prior version of each document.

These redlines can come in handy for reviewing and tracking changes in the event that the amendment does not describe all document changes in detail. For example, the amendment may contain a brief clause such as: “The Parties agree to amend Exhibit 2 to reflect changes to the Application Services. Exhibit 2 is hereby replaced in its entirety with the version attached as Attachment 1 to this Amendment.” While accomplishing the goal of replacing the document with agreed changes, this does not help a reader see the edits in the same way a redline in the contract database would.