A common question in the world of contracting and contract management is “What is the difference between a contract addendum and a contract amendment?” Addenda and amendments to contracts often contain critical elements related to payment or performance. Too often these important contract elements are used incorrectly or overlooked.
At a high level, both are legal vehicles to introduce additional provisions to a contract. They behave similarly, though their structure is quite different, and they are used in different situations. When considering your contract management process or automating through a contract management software solution, there are also material differences in how these are managed.
An addendum or a contract addendum is an addition to a contract or agreement. As the name suggests, it is something to be “added”. Its origin is Latin and is translated as “something to be added” or “an appendix to a work; a thing to be added”. In its singular tense, addendum, or plural tense, addenda, it is used to introduce supplemental terms and conditions to an agreement. Because they are additions to the contract, itself, they are governed by the contract. While they generally do not require specific signatures, some organizations may leverage a process whereby they initial key sections. Regardless, addenda are generally present at the time of execution of the original agreement.
When we think about an addendum in the context of our business as a cloud-based software company, we leverage addenda to capture additional concepts that are not part of our standard agreement. These generally include customer travel policies, insurance requirements, and in some cases, specific security protocols. They are governed by the terms and conditions of the main agreement and provide additional policies and procedures to which the parties agree, at the time of contract signature, to adhere. They can be general, or specific to a customer, as a travel policy.
We reference the addenda in the agreement, and the addenda are incorporated into the agreement - but they do not require a signature. When considered in the context of our real estate customers, an addendum is frequently used to address financing terms or property inspection requirements. Our pharmaceutical-based companies use addenda to define a variety of different items including CPT codes applicable for specific contract types.
Like an addendum, a contract amendment is also an addition to a contract or agreement. An amendment, however, is generally not used to add terms and conditions, but rather to change existing terms and conditions. It comes from the Latin word emendare which means “to correct, free from fault.”
Amendments are formal in nature, they reference the original agreement, and note the terms and conditions which are being changed. Because the changes do require the consent of both parties, amendments undergo a specific signature process. Generally speaking, amendments are introduced and signed after the original agreement has been fully executed.
Again, when considered in the context of our business, we leverage amendments to change such items as terms, renewal prices, and certain process information. Typical use cases for our client base include amending specific language present in a contract, extending expiration dates, or increasing the overall contract value.
As one considers when and where to use an addendum or amendment, the dialogue naturally extends itself to additional contract document types such as appendices, change orders, and order forms. This list is certainly not exhaustive and can include a variety of other document types as well - likely industry-specific document types which behave similarly to appendices, change orders, and order forms.
In its singular form, it is referred to as an appendix, while in its plural form, appendices. Like an addendum, it is a supplemental document that is referenced in the original agreement which introduces additional legal or commercial terms. Change Orders, as their name suggests, are a contract vehicle that is leveraged to change information contained within an agreement. As this document type changes terms and conditions, it is considered an amendment. Order Forms, which are generally leveraged to place additional orders for products or services, change existing quantities, and are thus, generally treated as an amendment. Other documents can be viewed in the same light; if they introduce additional terms and conditions as the time of the contract signature, they fall under the addendum umbrella. If they change existing terms and conditions, require a signature, and take place after the execution of the original agreement, they behave like an amendment.
Now that we have a clear understanding of how the different document types behave, it is useful to examine how to best manage these documents. Your approach to managing this information is highly influenced by how you manage your overall contract management process and your contract management software system of choice.
For those with a basic contract management process that includes storage of all contract documents in a centralized location, these additional documents can and should be stored in the same location. When referencing the contract, it is also necessary to review these documents so that a complete and accurate understanding of the agreement can be obtained.
For individuals who actively manage the terms and conditions of their agreements, but do so in a manual fashion, it is important to update or change any information which has been tracked. For example, for those who track terms, conditions, renewals, and obligations within an excel worksheet, first, know that you are not alone! Second, when an addendum or amendment presents itself, be sure to update or add to the existing information.
Organizations that leverage contract management software have similar considerations when managing these documents. First, and foremost, the documents should be stored together in a single “record” or “contract binder” or in related “records” or “contract binders” so that a complete view of the contract can be readily accessed. Depending on the level of complexity of the contract lifecycle management software (CLM) system, the contract additions or changes may require manual input, or there can be an automated approach to capturing this information. The best contract management software will not only automatically update or add the necessary information, but it may also schedule tasks, alerts, or obligations in accordance with your contract management procedures. They will likely also have visual hierarchy functionality to provide a clear visual depiction of the relationship between the contract document types.
For those with high volumes of contracts under management or extremely complex agreements, leveraging contract management software to not only automate the contract lifecycle but to also manage the amendment and addendum workflow process, is critically important.
If you are an avid reader of our blog series, you may already be familiar with our contract management software, Contracts 365. Contracts 365 is a cloud-based contract lifecycle management software that leverages the Microsoft Cloud. Not only does it automate the creation, negotiation, and management of your contracts, it can also automate the creation, negotiation, and management of your addendums and amendments.
With Contracts 365, you can select your document type, provide input into pre-determined fields through a wizard-like experience, and automatically create the document. In the case of an amendment, this document can then be routed for negotiation and signature. For addendums, the document can be created and added to the existing contract document set for negotiation and signature.
Once completed, your organization’s business rules can be leveraged to determine how to manage these changes best. Email alerts and tasks can be scheduled for specific resources to review the changes or the system can automatically update the identified information. Subsequent workflows, tasks, emails, and obligations can be created to support and manage these new terms and conditions. Not only will your system of record have accurate and up-to-date information, but it will also have a go-forward strategy to manage these terms and conditions adequately.
For example, with Contracts 365, a contract manager within your organization can leverage our document automation to create a contract amendment to extend the expiration date of an existing contract. Once this amendment is signed by both parties, it will return to the system and be stored within the relevant contract record. An automatic workflow process will take place to update the expiration date of the agreement within the contract record. New email alerts, task assignments, and obligations can be generated directly by the system for the extended contract term.
Contracts 365 is the leading contract management software for Microsoft customers. With usability, functionality, and security at the forefront of development, Contracts 365 addresses all aspects of the contract lifecycle through a modern, intuitive interface specific to your users. Customer First Cloud Architecture provides IT with the security of Microsoft 365 while powerful prebuilt integrations with Dynamics and Salesforce extend the platform to every part of your business. Please don’t hesitate to reach out to contact us or to request a demo.