“Change is the only constant” is a phrase as popular as it is true.
If the circumstances shift, an original contract you signed could no longer be acceptable or even profitable.
Taking a loss usually isn’t an option, so the smart thing to do is to either scrap the document and create a new agreement, or pivot toward contract variations.
In this article, we will explain what contract variations are, show the possible pitfalls when creating them, and suggest a way to make them easy to create.
- Contract variations are changes to the original terms and conditions that don’t fundamentally alter the contract.
- To be valid, a variation must be approved by the parties that have such right, include an exchange of something, be compliant with the original document, and be executed in accordance with the law.
- Creating a variation can result in breach of contract, misunderstandings, and documentation issues.
- Using a streamlined contract management system (e.g. PandaDoc) mitigates most risks and likely comes with several few benefits as well.
Contract variations 101
Contract variations refer to any changes made to the original terms and conditions of a contract.
These changes can be made for a variety of reasons, such as modifications in project scope, budget constraints, or unforeseen circumstances.
They can be initiated by either party involved in the contract, and they usually must be agreed upon by both parties in order to be legally binding.
However, some agreement templates can have a variation clause that allows one of the signatories to make changes unilaterally, though such mods are very limited.
“Agreed upon” doesn’t necessarily mean “written down.” The types of variations also include oral (unless specifically forbidden by the original contract) and through conduct.
For example, suppose a clothing retailer ordered 100 pairs of jeans, but due to high demand, urgently needs to get 100 more ASAP, fearing they’ll run out.
They can ask the supplier for extra items and pay the same price per pair, plus a premium for urgency. This would constitute a variation through conduct.
There are several types of variations, including changes to the scope of work, price or payment terms, completion date, etc. However, one also needs to distinguish them from addenda.
An addendum expands the initial contract (e.g. adding t-shirts to the order or jeans), while a variation changes something already present in it (the number of jeans and the delivery time).
When is a contract variation valid?
Just like there exists legitimacy criteria for an agreement, there are similar conditions for variations.
For a contract variation to be valid, it must meet the following requirements:
- Agreement: All parties involved in the contract must agree to the variation (unless the original contract allows for or gives one party a unilateral right to make changes).
- Consideration: Each party must receive something of value in exchange for agreeing to the variation.
- Compliance with the original contract: The variation must not contradict or breach any of the terms of the original contract.
- Proper execution: The contract variation must be fulfilled in accordance with the requirements of the original contract.
Finally, oral variations deserve a special mention.
There is a reason why many contracts expressly prohibit it — to make dispute resolution straightforward and unequivocal, as such a clause prevents altering a formal contract through informal means.
This applies to the UK, USA, Australia, and many other parts of the world.
To variate, or to terminate?
Should you even bother making a contract variation, or would it be better to make a new contract?
When should you variate, and when should you terminate?
There is a matter of how large a contract variation could be to still be considered a variation.
Unfortunately, there is no clear-cut difference, so if in doubt — seek legal advice from someone in your jurisdiction.
But if there are many things that need amending, it would be easier to just scrap the original agreement and create a new one, even though drafting contracts will take more time.
Another way to approach this is to see whether the purpose of an original contract needs to be changed.
Suppose you work for a software development company that was hired to build a dating service.
You and your client have agreed on the contract price, scope of work, milestones, etc.
But then, after you’ve already begun working, the client decided to pivot to becoming a video hosting service.
Filing change requests for everything would just be a ton of additional work, so at this scale, a new agreement would be a reasonable choice.
And if this sounds weird, this is exactly what happened with YouTube.
There are several problems that can arise when making a contract variation, including:
Lack of agreement
If one party does not agree to the proposed variation, it cannot be implemented (unless the other has a unilateral right to do so).
If the terms of the variation are not clearly defined, it can lead to confusion and disputes later on.
For example, if you verbally agreed to move a project milestone ahead, then the client forgot about it and claims that you didn’t deliver as promised.
Breach of contract
If the variation breaches any of the original terms of the contract, it may be deemed invalid.
If there are misunderstandings about the terms of the variation, it can lead to disputes and legal action.
The variation may have unintended consequences that were not anticipated by either party, which can also result in disputes and/or legal action.
If one of the parties doesn’t utilize an electronic contract management system or standardized contract documents, keeping track of the variations can be a gargantuan task.
Obviously, a written agreement variation would solve most of these issues.
However, it can also be time-consuming to create, approve and sign, when time is short.
And their consequences can range from extra work for the managers to supply problems to having to settle a dispute in court.
How PandaDoc helps streamline contract variations
So what if you work in an industry where contract variations are common, and need something to eliminate the headache accompanying them?
A tool that combines a document generator, template database, and legally-binding e-signatures, e.g. PandaDoc, would solve all these issues and more. Specifically:
- Quick creation. PandaDoc allows making new agreements in about 2 minutes on average. Creating and re-creating contracts and variations are now a breeze to execute.
- Easy collaboration. Having stakeholders approve the variations becomes much quicker when it only takes a couple of clicks.
- Legal protection. PandaDoc’s e-signatures are legally binding, which means there is no need to print anything out and sign it in person.
- Better presentation. As a service provider, you’ll be able to send the other party standardized, professional-looking documents that instill trust in your business.
- Convenient management. Having all the documents organized and kept in one space is not only handy, but also helps with compliance.
If these benefits sound compelling, don’t hesitate to schedule a demo or try the platform for free.