How to number clauses in a contract

Number a contract with decimal clauses and sub clauses, lettered paragraphs inside them, and schedules numbered on their own. Keep it to three levels, write cross references to the clause number rather than to above or below, and once the document has been relied on, insert new material as 7A instead of renumbering. The rest of this post is the reasoning, with a finished agreement to check it against.

Decimal clauses, lettered lists

The consulting agreement example on this site is a good model. An invented advisory firm, Halvorsen Advisory, reviews three bakeries for an invented group, Kettle and Fen, over seven weeks. The agreement runs to nine numbered clauses. Clause 1 is The engagement, and it splits into 1.1 What is being asked, 1.2 Who will do it, 1.3 This is not employment and 1.4 Not exclusive. Each sub clause holds one idea, which is why each can be cited on its own.

Three levels cover almost everything:

1. Clause, numbered 1, 2, 3, for one subject such as fees or confidentiality.
2. Sub clause, numbered 1.1, 1.2, for one obligation or right within that subject.
3. Paragraph, lettered (a), (b), (c), for a list inside one sub clause, such as the exceptions to confidentiality.

The table below this article adds the fourth level, schedules, definitions and the insertion formats. The reason to switch from numbers to letters at the third level is readability. A reference to clause 7.2(b) tells a reader the level of every part. A reference to 7.2.2 makes them count dots.

Australian legislative drafting follows the same logic. The Office of Parliamentary Counsel’s Drafting Direction 1.7 letters paragraphs (a), (b), (c) and uses every letter of the alphabet, including i and l, for paragraphs.

Keep sub clauses to one obligation

Numbering exposes structure; it does not create it. The practical rule is one obligation per sub clause, so that each can be amended, waived or disputed without touching its neighbours.

The consulting agreement’s clause 3 shows it working. Clause 3.1 sets the day rate of $2,400 plus GST in half day units. Clause 3.2 sets the estimate of 22 days and a cap of 24. Clause 3.3 covers expenses and 3.4 covers invoicing. If the client later agrees to a higher cap, only 3.2 changes. Had the rate, estimate and cap been one paragraph, a change to the cap would reopen the rate.

business.gov.au’s advice on preparing contracts is to use simple, plain language so both parties easily understand the document, and short numbered sub clauses are how plain language survives in a long agreement. A sub clause that needs more than four or five sentences is usually two obligations.

Watch for lists that restart at 1

One numbering trap appears in many real contracts, including two of the examples here. Clause 4 of the consulting agreement, What the client provides, lists four duties numbered 1 to 4 rather than 4.1 to 4.4. Clause 11 of the master services agreement example numbers its four dispute steps 1 to 4 in the same way.

Read on the page, both are clear. Cited in an email, they are not: item 2 of clause 4 and clause 2 are different things, and a hurried reader will confuse them. Two fixes work. Letter the items, so the reference becomes clause 4(b), or promote them to sub clauses, 4.1 to 4.4. Either keeps every citation unique.

The same care applies to definitions lettered inside a sub clause. The managed IT service agreement example defines Business Hours, Response Time and Resolution Target as (a), (b) and (c) of clause 2.2, which cites cleanly as clause 2.2(a).

Cross references that survive editing

A cross reference is a promise that the clause it names will still say what the reference expects. The consulting agreement uses them sparingly: clause 1.4 lets the consultant take other work subject to clause 6, the conflicts clause.

The UK Office of the Parliamentary Counsel’s drafting guidance offers three rules worth borrowing for contracts:

• Refer to the idea when you can. Instead of saying clause 7.1 does not apply to small orders, say no minimum order applies to small orders. The reader no longer has to turn back.
• Avoid above and below. The guidance advises against them on the whole. They break silently when clauses move.
• Minimise cross references. The guidance notes they make hard work for the reader, and that reordering the material can often remove them.

When a reference is needed, add a short description in brackets the first time: subject to clause 6 (Conflicts of interest). If the numbers ever drift, the description still tells the reader which clause was meant. The survival clause page shows why this matters, because a survival clause is almost entirely cross references to the clauses that keep working after the contract ends.

Inserting and deleting without renumbering

Before signature, renumber freely and then check every reference. After signature, or once a draft has been circulated and discussed by clause number, stop renumbering.

The Australian Office of Parliamentary Counsel explains why it rarely renumbers legislation: cross references in other documents it cannot amend, such as contracts and textbooks, would become misleading. The same is true of an amended agreement. Emails, variation letters, board papers and statements of work all cite clause numbers.

The UK guidance sets out the insertion pattern. New provisions between 1 and 2 are 1A, 1B, 1C. Between 1 and 1A they are 1ZA, 1ZB. New paragraphs between (a) and (b) are (aa), (ab). Do not generate a lower level identifier unless you have to. Drafting Direction 1.7 adds a detail worth copying: never put the letter I or O directly after a digit, because clause 25I reads as 251 and 25O as 250.

For deletions, leave the number in place with the words intentionally blank, or [deleted]. Clause 10 then stays clause 10 in every document that already mentions it. A variation to a signed contract should name the clause it changes in the same form, which the amendment versus addendum page covers.

Common mistakes

• Five levels deep. If a reference reads 7.2.1.3(a), split the clause or move detail to a schedule.
• Mixing styles. 5.1. with a trailing full stop in one clause and 6.1 without it in the next looks careless and invites doubt about whether it is the same document.
• Unnumbered paragraphs between clauses. A useful explanatory note is fine, but label it clearly as a note so nobody argues it is a term.
• Renumbering a signed contract. Every existing reference in every other document is now suspect.
• Headings that promise less than the clause does. A termination right hidden under Payment is found late.

The post on common contract clauses covers what each of the standard clauses is for, which is the other half of putting them in a sensible order.

Build it

The numbered clauses document maker is the starting point for an agreement laid out like the examples here. The generator classifies each document before writing it, including whether its structure is flat, numbered or tabular, and a table of contents is used only on a long document, with titles that must match the headings exactly so page numbers resolve. The guide to every document component covers the section, table and signature blocks an agreement is built from.

Whatever tool drafts it, the last step is manual: search the document for the word clause, read every cross reference against the clause it names, and confirm the schedules are cited by the same names they carry. Then add the signature block at the end, where each named party becomes one signer with a name, an email and a place in the signing order, so the execution sits outside the numbered clauses rather than inside the last one.