How to avoid contract ambiguity and achieve clarity

You write a contract. It looks crystal clear. Then someone tries to use it, and suddenly everyone has a different idea of what it means. Sound familiar?

This is the kind of headache that keeps legal teams up at night.

For in-house counsel, unclear contracts create a perfect storm of problems. They increase legal risk, slow down business operations, and damage relationships with counterparties.

On top of that, ambiguous contracts force legal teams to spend valuable time interpreting and clarifying terms that should have been clear from the start.

As Juro's General Counsel Michael Haynes puts it:

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The good news? Contract ambiguity is entirely avoidable with the right approach, tools, and processes. This guide will show you how to draft a clear contract that protects your business while enabling faster deals and better relationships with counterparties.

What is contract ambiguity?

Contract ambiguity occurs when terms or provisions within an agreement can be interpreted in more than one way. In other words, they have more than one meaning. This creates uncertainty about the parties' intentions and can lead to expensive disputes later down the line.

It's simple, really: if two intelligent people can read the same contract and come away with different ideas about what it means, you've got a problem.

When contracts are unclear, courts often apply something called the contra proferentem rule. It's pretty straightforward: if a contract term is ambiguous, courts will interpret it against the party who wrote it. This means if you're drafting contracts, unclear language could actually work against you in court.

What does contract ambiguity look like in practice?

Understanding where ambiguity typically creeps in helps legal teams prevent it, so let’s start there. Here are some of the most common culprits of ambiguity in contracts:

• Using subjective terms like "reasonable," "substantial," or "material" without actually defining how these things are quantified
• Failing to specify exact measurements, timeframes, or quantities that something should be delivered in
• Relying on industry jargon without proper context or clarification on what these terms mean for the parties involved
• Using different terms to refer to the same concept throughout the agreement
• Circular definitions that refer back to terms that haven’t been defined in the first place
• Inconsistent obligations or requirements that contradict one another
• Unclear hierarchy between general and specific provisions

What is the business impact of contract ambiguity?

Contract ambiguity creates far-reaching consequences that extend beyond legal departments. The most immediate impact is on your relationship with the counterparty, who you inevitably make life harder for when you let ambiguity creep into your contracts.

As Stefania Passera, contract design specialist, explains, "Unclear, careless communication is disrespectful to the recipient; it sends the message that clarity and transparency are a luxury."

But the true cost of ambiguity in contracts only compounds over time. 

Direct financial impact

The most visible costs of contract ambiguity appear in legal disputes and resolution:

• Litigation expenses: Legal proceedings to overcome a contract dispute can cost hundreds of thousands in court fees and legal representation
• Settlement costs: Many companies choose to settle disputes rather than litigate, but this still represents a significant unplanned expense
• Expert witnesses: Complex contract disputes often require expert testimony to interpret industry standards or technical requirements
• Internal resource drain: Legal teams spend countless hours reviewing documents, preparing arguments, and managing disputes

Hidden business costs

Beyond direct legal expenses, ambiguous contracts create numerous operational inefficiencies:

• Delayed deals: Unclear terms extend negotiation timelines and slow down deals
• Lost opportunities: While teams focus on resolving disputes, they may miss other valuable new business opportunities
• Relationship damage: Contract ambiguity trust between parties and can harm otherwise profitable relationships
• Team productivity: Commercial teams spend excessive time seeking clarification from legal instead of closing deals

Long-term reputational impact

Perhaps worst of all, ambiguous contracts negatively impact business relationships and a company's market reputation:

• Reduced trust: Counterparties may view unclear contracts as intentionally deceptive
• Market perception: Companies known for complex, ambiguous contracts may struggle to attract new business
• Internal friction: Unclear contracts create tension between legal and commercial teams
• Compliance risks: Ambiguous terms can lead to unintentional regulatory violations

Best practices for drafting clear contracts

Writing clear contracts isn't about hoping for the best. It's about having a plan. Think of it like building a house – you need a solid foundation, good materials, and clear blueprints. For contracts, that means using the right words (precise terminology), organizing them well, and keeping things simple.

1. Opt for precise and consistent terminology

First, define your terms clearly. If you're using a special word or phrase, tell everyone exactly what it means right at the start. Start by creating comprehensive definition sections that establish exactly what key terms mean within the context of your agreement.

Then stick to those same words throughout the contract. Don't suddenly switch from "the Software" to "the Product" halfway through – that just confuses people.

When you can, use terms that everyone in your industry already knows and understands. There's no need to reinvent the wheel. If possible, replace subjective terms like "reasonable" or "substantial" with specific, quantifiable metrics. When dealing with timeframes, quantities, or performance standards, use exact measurements instead of vague estimations.

2. Make your contract structure flow 

Contracts should follow a logical flow that's easy for readers to follow. Here’s our advice: 

• Organize provisions in a natural sequence that tells the story of the agreement, grouping related concepts together for easy reference 
• Use clear headings and subheadings as signposts, guiding readers through the document's structure
• Follow consistent formatting principles throughout the document to help readers navigate complex information
• For detailed provisions, consider using tables or numbered lists to present information in a digestible format
• If you're creating a complex agreement, consider including navigation aids like detailed tables of contents and carefully placed cross-references to help readers understand the relationship between each section

3. Use plain language where you can

Writing in plain language doesn't mean oversimplifying complex legal concepts. Instead, it means expressing those concepts clearly and directly, or choosing more appropriate language where possible. 

In particular, you should focus on eliminating redundant phrases and swap outdated legal jargon for clearer and more modern alternatives.

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If you favour plain language over the more complex equivalents, you’ll also cut down how often you have to define words or phrases in your contract. It’s a win-win. 

4. Test the terms internally

Want to really find out how clear your contract terms are? Start by getting input from all affected business units – they'll be the ones working with these terms day-to-day, and they’re a great reflection of the type of end users on the other side of the contract.

In doing this, remember that the contract still needs to strike a balance between being accessible and customer-friendly, while also protecting your company’s interests. 

Use Juro to reduce contract ambiguity 

Modern contract technology has transformed how organizations can deliver clearer contracts. 

Intelligent contract management platforms like Juro provide powerful standardization capabilities that help maintain consistency across all your agreements. With automated contract templates and pre-defined playbooks, you can make sure the entire team consistently uses clear and approved language. 

Meanwhile, version control features track changes and maintain a clear record of how the contract evolved, and what was negotiated. This is an effective way to pinpoint the areas of a contract that create the most friction, and resolve them.

Perhaps most exciting is the emergence of AI-powered contract drafting and review tools. Juro’s contract AI assistants can analyze language patterns, identify potential risks, and flag inconsistencies that might create ambiguity. All of this helps you reach that all important clarity faster.

Let's be clear: ambiguous contracts aren't something you should have to put up with, and the path to better contracts is simpler than you might think. 

Start by creating robust contract templates that strike that perfect balance between simplicity and protection. Then, automate those templates with a platform like Juro to make this repeatable for standard contracts, no matter who creates or sends them out. 

From there, you'll unlock faster contract creation, reduced friction during negotiations, and more predictable outcomes post-signature. To find out more about how Juro’s intelligent contract automation software can simplify contracting for your team, fill in the form below.