Tuesday, March 22, 2011

Effective Dates

Most agreements will include a date and establish that date as the "Effective Date" meaning its a defined term. The key with effective dates is what else in the contract is linked to them and uses the defined term "Effective Date".  If you don't refer to it elsewhere in the Agreement, you probably don't need it as the agreement will be effective if it has all elements required to form a contract and  is signed by the parties. You can set any date as being the “Effective Date” as long as the parties agree.

The effective date may be established a number of different ways.

A retroactive date (usually to cover purchases or sales made in anticipation of the contract).
  • This Agreement shall be effective retroactive to January 1, 2011.
A firm date established in the contract body.
  • This Agreement shall be effective on July 5, 2011
The date the Agreement is last signed by the parties.
  • This Agreement shall be effective on the date last signed by the parties
A date in the future.
  • This Agreement  shall take effect on December 5,2012
The date specific conditions have been met.

  • This Agreement shall be effective once all of the following conditions have been met

If the effective date is linked to the term of the Agreement, you don't want an effective date that starts the term and cut into the length of your contract coverage period when you are not buying anything.  If there is going to be a delay in making purchases or getting deliveries as occurs with long lead time items, the earlier you make the effective date, the longer the agreement term you may need. For example, If you had equipment or goods with a 4 month lead time and the term is tied to the effective date, you will only really have contract coverage for eight months. If it was important to have a 12 month period to review performance, you would need a 16 month contract term starting from the effective date.

If the effective date is linked to the period for performance, there is always a possibility that a key date could slip, you could also work that into the term.  For example: Contractor shall have One Hundred (100) calendar days after the Effective Date to complete all work. If Contractor is delayed in commencing performance by Owner, the period for performance shall be extended on a day for day basis."

You may want to establish a retroactive effective date when you have already purchased something and you want the purchase terms to be applied retroactively to those purchases. There are two ways to do this. In making those advance purchases the parties could mutually agree that the terms of that future agreement will retroactively applied to those purchases. Once the Agreement is signed, those terms apply to the prior purchases. Alternatively, you could establish the effective date as the date those advance purchases were made so the terms of the agreement apply to those purchases.

The use of completion of conditions to establish the effective date is a form of condition precedent. Even if the Agreement is signed it isn't effective until those conditions have been met.


  1. Effective date of contract shall be treated as the the both party agreed and signed the contract. The commencement date for service shall mean that the firm shall carry out the deliverable as per the time line given

  2. Dear Anonymous, yes, a contract may include a separate date for commencement of service. Many times you may be concerned with disruption of activities so you may also require that once commenced that it be performed diligently or you may establish a completion date tied to when the work commences.