Contract Variation Agreement

Top Features of a Contract Variation Agreement 

☑ They allow all parties to adjust to new circumstances without the need to terminate the existing contract and negotiate a new one - saving you time and resources.

☑ Variations can often be negotiated and implemented more cost-effectively than starting entirely anew - especially when the changes are minor or moderate.

☑ The process of varying a contract is usually quicker than drafting a new one since the foundation of the agreement remains the same.

☑ Adjustments can be made to address unforeseen risks or changes in circumstances that were not present in the original document - helping all parties manage their risk more effectively.

☑ Variations can also be used to modify the contract to ensure ongoing compliance with new laws - or regulations - without the need for a completely new agreement.

Table of Contents

• What is the Meaning of a Contract Variation Agreement?

• When Should You Use a Contract Variation Agreement?

• Why is a Contract Variation Agreement important?

• The Contract Variation Process

• Contract Variation Agreement Consideration

• Contract Variation Template Outline

• Can You Vary a Contract Without a Contact Variation Clause in Place?

• What is the Difference Between a Contract Variation VS an Amendment

• Contract Variation Notice: How Long Can You Give It to Take Effect?

• Is a Contract Variation Letter the Same as a Contract Variation Agreement?

• What is a Variation Clause?

• What Are The Common Pitfalls of a Contract Variation Agreement?

• Contract Variation Agreements Overall?

• Ready to Get Started With Your Contract Variation Agreement Template?

What is the Meaning of a Contract Variation Agreement?

A contract variation agreement is an agreement used to amend or vary the terms of an existing contract by mutual consent of all parties to the original agreement. 

In other words, the parties agree to do something different from what was initially approved while keeping the remainder of the original agreement terms the same.

When Should You Use a Contract Variation Agreement?

Commercial arrangements occasionally progress differently than initially envisaged at the beginning of the relationship. A contract variation agreement then provides a flexible yet precise arrangement for all parties to continue the relationship even when changes in circumstances arise. 

Recommended to be in Writing

Whilst amendments or variations to contracts do not strictly need to be in writing, it is strongly recommended that agreed changes be in writing to ensure clarity and transparency.

It is often also a specified term in commercial agreements that any amendment or variation to that agreement needs to be in writing and signed by all parties. 

All Original Parties Need to be Involved

All parties to the original agreement must be parties to the contract variation agreement, as every party must agree to any amendment or variation. 

If this is not possible, then two or more parties could, for example, have a side letter to govern the relationship between them instead. However, the rights and obligations of the original party who does not sign the side letter would be maintained as is. 

Why is a Contract Variation Agreement important?

As mentioned above, it is often a requirement and, therefore, essential to use a contract variation agreement to amend or vary the terms of a contract. 

Even if it is not a requirement in the original agreement, the variation agreement, which will be agreed upon and signed by all parties to the original, will ensure that any variation to the original “plan” is spelled out clearly to avoid any misunderstandings and potential disputes. 

Unless otherwise specified in the original agreement, parties could, for example, vary the original agreement orally or by way of conduct. 

However, such informal variation is strongly discouraged due to the uncertainty and difficulty in proving the agreed changes. 

The Contract Variation Process

When it comes to knowing if and how you should make a variation agreement, there are several things to consider. For instance:

Identify the Need for Change

The first step is recognising that the original contract terms no longer fit the current situation or goals.

Negotiate New Terms

Both parties then tend to need to discuss and agree on the new terms. This negotiation phase should aim for a win-win outcome, preserving the business relationship for both parties.

Draft the Variation Agreement

This document should clearly specify the changes to the original contract, including which clauses are altered, added, or removed.

Review and Sign

Both parties should carefully review the variation agreement. It’s often wise to seek legal advice to ensure the changes are in your best interest and won’t lead to unforeseen consequences.

Implement Changes

Once signed, the agreement is legally binding, and the parties should act in accordance with the revised terms.

Key Considerations

Changing a contract variation is not always as straightforward as just writing an amendment and sending it straight over.

For example, some things to consider should be based around:

Legality of the changes

These changes should, for instance, comply with applicable laws and regulations. Otherwise, they may become null and void the second they go live.

Clarity

Variations should be drafted clearly to avoid ambiguity.

Consent

Changes must be mutually agreed upon; one party cannot unilaterally alter the contract without the other party agreeing to it.

Documentation

You should also keep thorough records of all communications and the final signed agreement for future reference to help avoid any disputes.

Contract Variation Agreement Consideration

A well-drafted contract variation agreement is clear, concise, and comprehensive. 

As a result, you should consider the following points in your variations:

• Parties involved

• Specific changes being made

• The effective date of those changes

• How does the variation impact the original contract

Contract Variation Template Outline

Each reason for a contract variation can have its own unique complexities to bear in mind.

Therefore, it is crucial to ensure that your variation letter is documented clearly and thoroughly, with a focus on avoiding any ambiguities and potential disputes that may arise from this change in the future.

However, as a rough contract variation example goes, some areas to consider in your template could be, for instance:

Introduction

• Title of the document (e.g., "Contract Variation Agreement")

• Date of the variation agreement

• Names and details of the parties involved (the same as in the original contract)

• Reference to the original contract (including the date of the contract and any identifying number or code)

Recitals

• Background information explaining the reason for the variation

• Statement affirming the parties' intention to vary the terms of the original contract

Definition and Interpretation

• Definitions of key terms used in the variation agreement

• Any interpretation rules that apply to the agreement

Variation Clause(s)

• Detailed description of the specific changes to the contract terms

  • Which clauses or sections are being amended, added, or removed

  • Clear and concise wording of the new terms

  • Consideration for the variation, if applicable (i.e., what one party might be giving to the other in exchange for the variation)

Effect on the Original Contract

• A statement specifying that all terms and conditions of the original contract, except those explicitly varied by this agreement, remain in full force and effect

Representations and Warranties

• Statements by the parties confirming their authority to enter into the variation agreement

• Confirmation that the variation does not violate any laws or other agreements

Miscellaneous

• Dispute resolution mechanism for any issues arising from the variation agreement

• Governing law and jurisdiction

• Any other legal boilerplate necessary for the specific context

Signatures

• Signature lines for all parties involved, including the date of signing

• Witnesses or notarisation, if required by law or desired by the parties

Additional Considerations

Some additional areas for you to consider could also easily be around:

Review and Approval Process

Depending on the nature of the contract and the parties / organisations involved, the variation may need to be reviewed and approved by specific individuals or bodies (e.g., legal departments or boards of directors).

Confidentiality

If the original contract contains confidentiality clauses, consider whether a similar clause is needed in the variation to protect any new or amended terms.

Attachments

Make sure to attach any documents that are part of the variation agreement, such as any detailed technical specifications or additional contracts where needed.

Can You Vary a Contract Without a Contact Variation Clause in Place?

Yes, you can vary a contract without a contract variation clause in place. However, both parties must agree to the changes.

Without a specific clause, the process is less straightforward and more reliant on mutual consent.

Therefore, it is essential to document any agreed variations in writing to avoid disputes about the contract terms later on.

What is the Difference Between a Contract Variation VS an Amendment

The difference between a contract variation and an amendment is very much nuanced. 

Variation

A variation, for instance, modifies specific terms or conditions of an existing contract - without changing its overall nature.

Amendment

An amendment, on the other hand, may introduce new terms or conditions, altering the contract more significantly. 

However, both require the agreement of all parties involved.

Contract Variation Notice: How Long Can You Give It to Take Effect?

The notice period for a contract variation notice depends entirely on what is specified in the original contract or any applicable laws. 

If not explicitly stated, though, what is known as reasonable notice should be given - allowing both parties sufficient time to understand and agree to the changes.

This period can then vary depending on the contract's complexity and the nature of the variation as well.

Is a Contract Variation Letter the Same as a Contract Variation Agreement?

A contract variation letter and a contract variation agreement can serve very similar purposes but differ more in formality.

Variation Letter

A variation letter, for instance, may informally propose changes to a contract.

Variation Agreement

A variation agreement is a formal document that amends the contract once all parties sign it.

Both should clearly outline the variations and be agreed upon by all involved, however.

What is a Variation Clause?

A variation clause in a contract specifies how the agreement can be altered after it's been signed. 

This clause then outlines the process for making changes to the contract moving forward - including who can initiate changes, how they should be documented, and any limitations on what can be varied. 

These clauses help you manage future modifications smoothly and with a lot more predictably as a result.

What Are The Common Pitfalls of a Contract Variation Agreement?

It is widespread for parties only to amend - or vary - specific terms without considering other clauses in the original agreement.

Contracts are often like jigsaw puzzles, where the mechanics or procedure of one term usually feed into or affect the function or outcome of other terms in the contract. Therefore, it is essential to consider the rest of the original agreement and the consequences for other terms when varying or amending specific clauses. 

Sufficient Details Should Be Included

Sufficient details should be included to ensure that the variation or amendment - as well as the remainder of the original agreement - continues to work as expected.

Avoid Disputes

As specific commercial scenarios emerge, parties often agree to do something differently from what was initially agreed upon casually, i.e., via email, verbally, or simply by action. 

This is often only a problem once it is a problem. 

When a dispute arises, with a written contract variation agreement in place, it is easier to prove an agreement to the variation or amendment that occurred - consequently, this creates substantial risks and costs (for both time and money) for all the parties. 

Considering the complexities of contract variations, utilizing AI in contract review can provide valuable assistance in ensuring that all variations are accurately documented and understood. With AI-powered contract management systems, businesses can streamline the process, reduce the likelihood of misunderstandings, and mitigate risks associated with informal agreements.

Using Contract Variations for Large Structural Contract Changes

Suppose the amendments - or variations - are substantial. In that case, the parties should consider if a new agreement should be entered into instead of this contract variation agreement.

Consequently, it would help if you always tried to ensure that the variation agreement is consistent with the spirit and objectives set out in the original contract and that these amendments do not significantly change the original contract scope.

Do not Overlook Implications

For instance, you should consider how these changes will affect the entire contract, not just the isolated clauses that they may be adapting.

If other sections of the original contract, for instance, reference or rely on the clauses being changed, then this amendment could have far-reaching changes than the original intended to make.

As a result, care should be taken if a new agreement is entered into to replace the original agreement, especially if the parties' rights, performance, and/or liability are “transferred” to the new deal. 

Contract Variation Agreements Overall?

As you can see, contract variation agreements are a necessity in the modern business landscape to allow organisations to change and adapt to the situation around them.

Helps Keep Strong Partnerships

By understanding how to manage these agreements effectively, your business can maintain its relevance, help strong partnerships flourish, and navigate changes to your industry and working patterns with ease and confidence.

Goals

Remember, the goal is not just to amend a document but to ensure that the contract continues to work to a mutually beneficial relationship under new circumstances.

Ready to Get Started With Your Contract Variation Agreement Template?

Create all your contract variation agreement templates in minutes. 

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