Contracting Mistakes #5Posted by Alex Hamilton
Every week we talk to in-house legal teams who are being run ragged meeting business demands, finding change to be hard, while facing cost and headcount pressures.
We also know other teams that are spending their time on what matters, with a contracting process that flies and with a business happy to pay.
Often what’s stopping teams from getting to this promised land are some simple, understandable, and fixable mistakes. This is part of a series covering seven common mistakes that we keep seeing; you can see links to all of the posts in the series at the end of this article below.
#5: "Robust" terms
“Contract law is essentially a defensive scorched-earth battleground where the constant question is, 'if my business partner was possessed by a brain-eating monster from beyond spacetime tomorrow, what is the worst thing they could do to me?'” - Charles Stross
I’m not sure I’ve actually heard anyone argue that contract templates are best when long, tortuous, unclear, unreasonable and trying to cover every eventuality… but they sure end up that way.
Instead, we use polite terms such as “robust”.
What robust means, of course, is that the author is hopeful they won’t get fired when some random left-field event happens in the future and the business wants to know whether they are completely covered by the contract. The only way to address this fear appears to be to just keep writing until you’ve covered every single possible point that comes to mind, only add and never remove language, and while you’re at it, make sure that the terms are so painfully and unreasonably one-sided that there is no comeback ever.
And then everyone is shocked at how long contracts take to close.
Behind this remorseless trend towards turgid one-sidedness are many culprits: the law firms who created the initial terms and act like they are being paid by the word, the GCs who haven’t given their team aircover to be reasonable, and those businesses that haven’t taken on board that a culture of finger-pointing may lead to suboptimal outcomes.
I wrote previously about this chart showing the outcome of four similar projects (updating contracts for the GDPR) and noting that company B’s contracts took over four times longer to close than company D’s, due to one unreasonable provision:
Comparison of GDPR projects for four companies (A-D). Adding a single indemnity made project B take over four times longer on average to close than project D.
But surely, you cry, terms should still be robust. Well, yes, you want them to cover the major points, to address the major risks and offer a reasonable level of protection against material non-performance. But there is a balance to be struck and balance is currently the exception rather than the rule with standard terms.
To fix this requires bravery. It’s far easier and “safer” to be unreasonable. But the biggest cause of drawn out contract negotiations, and the profound negative impact that has on the team and business, is starting from unreasonable standard terms.
We are running regular free webinars to discuss the key principles that underpin transforming contracting processes (along with the mistakes to be avoided).
You can also read all the posts in this series: