What is contract execution and why does it deserve special attention?
People misuse the term “contract execution” all too often.
However, it has a commonly accepted definition and a clearly defined role in the lifecycle of a contract. Getting it right will help you better grasp how to handle agreements.
Here’s the most important thing to know about it.
Contract execution is not about ending a document’s life
Contract execution may sound like taking the contract to the end of its life where all the contract targets have been met. But that’s a common misconception.
Contract execution stands for signing the contract and putting it to work, a specific stage of the contract administration process.
That process extends from early planning to post-contract review and includes several other stages (e.g. contract management).
Compared to those other stages, contract execution looks simple. However, even here things may get tricky.
What can go wrong?
You’ve put a lot of effort into negotiating the terms of the contract with the other side and organizing everything into a draft.
Polished through multiple revisions, the black letters are shining on the white background, waiting to be turned into action. So, what can affect your workflow toward an executed contract?
Quite a few things, actually.
1. Building the Tower of Babel
Once the written contract has been signed, all involved people need to get their copies. “Wait, why are we skipping the inking process?”
I hear you ask. But we’re not skipping it — we’re suggesting starting a few steps earlier.
You may end up building the Tower of Babel.
The Tower of Babel started as a project where all participants spoke the same language. But the project failed because, one day, the participants could no longer understand each other.
Back then, a higher power was involved; these days, we make our own decisions — and when all parties aren’t literally and figuratively on the same page, we’re inviting failure
To avoid a failure like that, you need to get all participants onto the same page by listing all the people in your company who need to get a copy.
But listing those people may take a while, and you don’t want to add anymore stoppage time on your road toward an executed contract.
So, better to start pulling in recipients first thing. Who these people are will depend on the contract itself. It could be executives of companies partnering together as one party of the contract.
Or it could be the heads of departments within your company.
2. Getting lost in translation
The date you put on a contract is typically the day when you’ve signed it. But what do you call it — the execution date or the effective date?
The answer is the execution date. If you specify the day on which the contractual relationships begin in the contract, it will be the effective date.
However, your written agreement may state that it should be effective once it’s been signed.
Don’t confuse the two.
3. Choosing the one
Now you’ve gotten close to one of the key points of your contract’s lifecycle: the signing. But do you know who should make that decisive stroke of a pen?
If you’re a sole proprietor or individual (e.g. real estate owner), the answer is obvious.
Things get a bit trickier if you’re with a corporation or limited liability company (LLC). In this case, US law gives a director or executive officer the authority to ink the contract.
However, your LLC operating agreement or bylaws may give that authority to another stakeholder.
For a partnership, the general partner is the default signee, unless the partnership agreement specifies otherwise.
And if you’re working with a government agency, this rule applies:
“Only contracting officers shall sign contracts on behalf of the United States. The contracting officer’s name and official title shall be typed, stamped, or printed on the contract. The contracting officer normally signs the contract after it has been signed by the contractor. The contracting officer shall ensure that the signer(s) have authority to bind the contractor (see specific requirements in 4.102 of this subpart).”
Remember: the one chosen will be responsible for signing every addendum as you and the other party decide to tweak the original agreement.
4. Keeping it to the letter, the spirit and the deadline
Before signing the contract, you and the other party need to take it through legal review. And that process can take a lot of time, slowing the business down.
Legal review is a step you can’t skip as you move toward an executed contract. But you can speed it up: highlight the parts of the contract that require attention from the other signatory’s legal team.
For instance, you may highlight three pages of a ten-page document listing the legal terms of the contract.
The other party will only have to skim through the remaining seven before handing it to their legal team.
And if you’re using contract management software like PandaDoc, you can even tag that legal team next to the highlighted sections.
5. Making the decisive stroke
Before COVID, putting signatures on paper was a challenge. Everyone wanted the traditional wet ones, sometimes even when the signing parties were in different parts of the globe.
Old conventions die hard, and it took a deadly disease to do away with that type of thinking.
Today, there’s no reason to avoid using electronic signatures, and countless reasons why the tech should be embraced.
First of all, regulatory bodies consider them legit for most types of contracts.
Here’s an excerpt from the Electronic Signatures in Global and National Commerce Act:
Notwithstanding any statute, regulation, or other rule of law (other than this title and title II), with respect to any transaction in or affecting interstate or foreign commerce —
(1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and
(2) a contract relating to such a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.
Second, you have a range of digital tools to choose from, each allowing you to sign “papers” remotely.
Here are the most common choices:
- eSign Genie
PandaDoc, for one, is more than just a digital signature application. It streamlines the entire contract administration workflow for you, including your journey toward an executed contract.
Within one interface, you can use contract templates, collaborate on a draft with other parties, distribute it to everyone involved, sign it and more.
6. The homestretch toward an executed contract
Signing any legal document isn’t enough for it to fully come to life. You’ve previously created a list of the people who need a copy of the signed contract, and now you need to share it with them.
If you’re using software like PandaDoc, you can do so in a couple of clicks. Otherwise, email it to them and follow it up with a call to make sure your message doesn’t get lost.
Congratulations! You now have an executed contract. May the procurement begin!
Putting it all together
Contract execution is all about signing a contract and ensuring everyone involved receives a copy to work from.
That includes creating a list of recipients, clarifying dates in the contract, avoiding long legal reviews, selecting signees, and signing and distributing the copies.
The best way to go about this process is by using contract management software. One example of such software is PandaDoc, and it has all the tools you need at each stage.
See for yourself — start your free trial now.
Frequently asked question
Contract execution is an important stage of the contract lifecycle where the parties sign a contract and put it to work.
You start contract execution by creating a list of people in your company who need to receive a copy of the document.
A contract comes into effect on the effective date. This could be specified in the contract as a particular day or as the same as the execution date (the date of signing the contract).
Highlight the parts that require the attention of the other party’s legal team.
If your party is one person, then this person should sign the contract. If you’re an organization, it’s the job of the executive or a specifically authorized person. The latter applies to partnerships as well as an alternative to the general partner’s signature. In government organizations, only contracting officers have the authority to ink agreements.
Yes, electronic signatures are legally binding in most cases. According to the Electronic Signatures in Global and National Commerce Act, signatures shouldn’t be deemed invalid simply because they are electronic.