Last updated on 

May 30, 2022

What is the purpose of a contract? And the technology you can use to make them highly effective

What is the purpose of a contract? And the technology you can use to make them highly effective
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What is the purpose of a contract? And the technology you can use to make them highly effectiveWhat is the purpose of a contract? And the technology you can use to make them highly effective

At some point, any successful company is more than likely to need a contract. Effective contracts are the backbone of any organization - outlining what is required from business partnerships or relationships and minimizing any legal disputes. But, they are also more than that. Here, in this article, we look at the purpose of a contract alongside answering other common contract questions. Such as, what does under contract mean? Or, what does active under contract mean?

Answering these questions, along with other FAQs, is key to making the most of contracts and how they can help your business. For that reason, we also use this article to highlight developments in contract management templates as well as contraction solutions and software, like ours at Contractbook. We passionately believe that contracts, when used correctly, can materially improve a company’s future success - as well as saving them time and effort when creating a contract in the first place. 

What is a contract, and what is the purpose of one? 

Put simply, a contract is a written agreement that outlines the terms and conditions regarding a deal or transaction between two parties. Those parties can be an individual, a partnership, or a company. A contract will detail the formal requirements and responsibilities that each party is expected to meet in order to uphold the agreement. A good contract will also outline and establish any obligations, as well as costs and benefits included throughout the contract or relationship. It should also deal with the idea of how to end the contract or terminate it.

The purpose, therefore, of a contract that includes all these elements is to ensure there is no element of doubt between the parties involved. That’s so crucial for any contract. By being clear and direct about what characterizes and constitutes the working relationship, there is no room for misinterpretation or misconceptions when the working relationship begins. As a result, a good contract will produce better results from that clarity as all parties know what is required of them and what they are obligated to do (or not do in many instances.) In short, it is meant to be an expression of the agreement reached between two parties and that is agreed upon free of coercion. A contract does not have to be long to be effective; it only needs to be clear. 

The following terms are often confusing to those outside of the legal world. However, understanding them can help comprehend the world of contracts a little bit more for a layperson. 

What does under contract mean?

Being under contract is a term often used in the realm of real estate and property. When a house is under contract, it means that one party has made an offer on a house that has been accepted. However, it is not technically sold, just under contract until a contract has been completed. Being under contract is the process of finalizing any details needed to complete a contract. 

When it comes to real estate, that often means carrying out surveys to ensure that a mortgage can be secured or any other funding. Only when both a buyer and a seller of a property have signed and exchanged contracts can a seller no longer accept any new offers from other parties. 

What does active under contract mean?

Active under contract is another term that is often seen in the real estate world and is similar to the term under contract. The active part of this term means that it is up for sale, but the under contract part means that the seller cannot accept any other offers at that moment in time. However, as it is still up for sale, the seller can at least ascertain backup offers from other parties that may have become interested. Given the number of housing contracts and sales that fall through, despite best efforts, having backup offers can be a crucial way sellers can still sell their property quickly.  

Contract management template developments 

Contract templates can be a fantastic way to ensure that you have included everything that you require in a contract. Essential elements are often the same across contracts - even if they are with different parties. Obvious examples will be names and addresses, and sometimes even fees or fees structures. However, some clauses may be identical between contracts, too - particularly ones that are low in complexity. However, with certain contract management template developments, contracts with increasing complexity can have a great deal of the hassle taken out of them. Below, we list three of the most common contract template tools that will minimize the amount of time that contracts take to create and sign. 


Contractbook has a whole host of templates that can be used as a starting point for a legally binding agreement that can be relied upon to be dependable and trustworthy. Using a template is a great way to reduce the amount of time needed to establish a contract from scratch. Importantly, however, it is a good way of minimizing error and therefore ensuring a credible legal position in the future if needed. 

Manually copying and pasting, or even manually inputting, information into each contract is a sure-fire way to introduce human error to the process. Human error can mean key, important information is either missed out of a contract or incorrectly inserted. At best, this can make a company look unprofessional. At worst, this can make it challenging to find a legal remedy to a dispute when necessary. Templates help mitigate against that.

Automation - kill the PDF!

Automation is one of the key and most fundamental developments to contract management. At Contractbook, we love automation. We hate PDFs. With a passion. 

Automation allows companies to ensure that the data stored in contracts about liabilities, employees, collaborations and transactions can be used quickly to enable better decision making and build smarter workflows. PDFs, however, do not let companies unlock the value of a signed documents or utilize the business intelligence in a contract at all.  However, that’s great for us as our competitors rely on PDFs - and to their detriment. While our competitors focus on PDFs, their software can only ever help sign a contract and store it never to be used optimally again, we focus on automation. 

Automation means that even less human error is likely in the creation of contracts. By extracting required data from documents, contracts can be automated at the push of a button. The result? The time it takes to create a contract is even further reduced, taking a lot of the administrative burden out of the process entirely. Automating can also mean that a business is fully prepared for the future too. Flawless contracts are created in no time at all, leaving employees and personnel to add value in other areas of their job. 

Autogeneration - bury the PDF forever!

Finally, auto generation is the latest development in contract management. Auto generated contracts are a fantastic resource that companies should try to use as much as possible. Auto generated contracts are created when key events are triggered - meaning that it is not incumbent on an employee to start the process of creating a contract. Instead, one is created as part of the automated process. Therefore, if a company collects data on the go and creates contracts using data-driven documents, auto generation is a genuine possibility that reduces the chances of human error. 

Contract solutions and software

Bearing in mind all the benefits these contract management and contract template developments can provide a company, what else can contract solutions and software as a whole offer businesses? While we cannot speak for our peers, at Contractbook, we believe that our software is more than just a quick win for a company. Yes, our software will help you save time so that you or your staff can better direct their attention elsewhere. However, our software solution also provides the following benefits as standard: 


Our software allows you and your teams to collaborate on a contract without the need for emailing versions - or worse yet, printing versions for handwritten notes to be made. Plus, our software means you can collaborate with other parties outside your organization - meaning that negotiations can be conducted easily. What’s great about that is, not only does that materially reduce the time, it also makes the whole process a far more pleasurable one. As opposed to revision after revision that considers yet another stage of negotiations, collaborations utilize the electronic format, so amendments are quick. As a company, you look far more professional as a result. Plus, any modifications are recorded, thus creating an audit trail too. 

Storage and organization 

In the past, when a contract was printed and signed, it was then filed away - sometimes never to be seen again. That can cause problems as it means, should a contract need to be found, it is complex and onerous - particularly if it has been filed in the incorrect place. Plus, it means that any information saved within that document is likely never to be used - yet contracts are full of essential data and information. Finally, it means that information cannot be used in the future when it could help inform business decisions or further business partnerships. 

Storing a contract correctly is just as much a part of its lifecycle as getting it signed. With the correct storage - using the latest cloud technology - filing contracts away is a breeze, making them far more accessible in the future. 

Template library

Our template library is extensive. It has a vast range of contract templates ready to go with only a few bits of personal information required from you and your other party. That means you are freed up to make the most of the relationship from the completion or effective date. Plus, they are fully editable. So, should you need to insert a really specific clause unique to your company or your future business agreement, you can - and quickly too. It means that our templates are the ideal starting point for many standard contracts that most companies will need at some point. Lawyers create our free templates, and they are dynamic too to make your contractual work simpler, easier, and more efficient. 

Dynamic documents

Our software makes use of the idea behind dynamic documents. It is one of the ways that contracts can be leveraged and optimized to their best advantage. A dynamic document is frequently and consistently edited or updated, so the information within it is always current. Using documents like this makes it possible to pull the relevant data from within them and insert them as required into contracts. The result is that contracts are always up to date and future ones are not reliant on obsolete information. 

Improve business partnerships

We are passionate about contracts at Contractbook because we believe them to be an underutilized tool in many companies’ armory. When used properly, they can be harnessed to create far more effective partnerships that produce better results for both parties. As briefly alluded to above, our software makes collaboration more accessible as well as negotiation. 

Plus, our software, being as effective and efficient as it is, smooths out at possible lumps or bumps in the process, making what can be a troublesome exercise far easier. There is, as a result, a much more diminished chance for ill-feeling to build up between two parties when trying to finalize a contract. 

Not only do you look much more professional, therefore, but you are also able to minimize any source of friction between you and the other side that can come from delays. What is left is a clear direction on both sides’ requirements from the contract from the outset. That’s why better results can be achieved with an improved contract creation process. Both sides know the terms and conditions, so they stick to them. Plus, as both sides know those terms and conditions, the likelihood of a legal dispute materializing is much reduced. 

What’s left is a relationship that can flourish as opposed to flounder. 

Reduce errors

One reason our technology reduces contract creation time - by some margin - is the reduction in errors that can creep into manually generated contracts or documents. By using a data-driven system, the correct and accurate information can be pulled into a contract seamlessly. Not only is it quick, but it is also meticulous so that those documents can be relied upon time and time again. In addition, the need for triple-checking by several parties is eradicated, thus freeing up yet more personnel time. And, of course, no errors make their way to the final document. Therefore, both sides can enjoy working from a legally binding contract that they can both rely on to protect them in the future, should they need it. 

Smart reminders and task management

Through dynamic documents, cloud storage, and our software’s ability to oversee the entire contract lifecycle, setting reminders and micro-managing team tasks becomes a thing of the past. Instead, our software creates smart reminders that are essential to push through a contract to completion and ensure that any follow-up work once a contract has been signed is executed. 

And, of course, the time that frees up for managerial personnel is not to be overlooked. As tasks are automatically generated and assigned, managers do not have to take time out of their day to chase up where individuals are with their work or designate it to the relevant team member. Instead, they can concentrate their efforts elsewhere instead of having to nag or delegate tasks the majority of their day - all just for one contract.

Finalize contracts more quickly

Ultimately, our technology will help you finalize contracts more quickly with our automated software and auto generation tools. While our technology is so much more than a time-saving hack, the very happy result is that it does materially diminish the time it takes for contracts to be created. And, while that means less of your employees’ time is tied up in administrative affairs, it also means that a business relationship can start more quickly. Moreover, that business relationship should hopefully go on to add value to both parties, so the quicker that both parties can start extracting value from working together, the better. 

Overall takeaways to creating contracts

Creating contracts is an important task. But that does not mean that the entire process has to be onerous or laborious. Instead, using our software, creating and completing contracts can actually be a real opportunity for two parties to forge a successful relationship. 

To aid that, the process must be efficient - with both parties knowing where they are in the entire lifecycle of the contract. Additionally, a good agreement - and key to its purpose - must clearly outline the obligations and responsibilities for both parties. Finally, a streamlined contract creation process can help facilitate that both sides do not get bogged down in the toing and froing between one another. Instead, what is left is a contract where both parties have had their opinions and needs heard in a respectful and supportive process.  

With the right software, like ours, automation and auto generation can even help take care of the creation process of many contracts - leaving personnel with time to focus on tasks where their efforts are better channeled.

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