Modern Contracting

Let me begin by stating the obvious, namely, that these are my personal views, and not those of any employer, past or present.  

First, some background, for those not familiar with me or this personal blog.  I have practiced law in various in-house and law firm settings for the past 20+ years and have worked on thousands of transactions.  As a result, it is impossible not to form views on contracting (and various other topics) or to fully avoid a dispassionate approach to issues raised by law practice generally. 

“The doctrine of contract has been so thoroughly remodeled to meet the needs of modern times, that there is less necessity here than elsewhere for historical research.  It has been so ably discussed that there is less room here than elsewhere for essentially new analysis.”  Oliver Wendell Holmes, Jr. writes this in Lecture Seven (Contract – I. History) of The Common Law (1881). To be sure, we have progressed from only covenant and debt, promissory oaths, and the suretyship of ancient law (where the surety was, literally, a hostage).  Most documents no longer require seals, and, for the most part, contracts can be executed electronically, even on your mobile device. 

That said, to some modern contracting is an oxymoron, evoking images of a wood-paneled office, a whale oil lamp, a roll top derby desk (preferably oak), a fountain pen, an ink well, and a scrivener.  Of course, these have been replaced by a laptop, a word processing program, and some type of office or, certainly during the pandemic (and even before), no office at all.  On a vacation to Maui some time ago, to account for multiple time zones I worked on a contract on my lanai, as the sun was rising, to avoid waking up others in my hotel room.  Beautiful setting for sure, but I would have preferred to have been asleep.

Consumers, rightfully so, want seamless legal transactions, consummated by one click or perhaps two at most.  No one wants to unfold and study a map when Google Maps is a few clicks away.  For better or worse, it may take some time to develop a contract for a given commercial transaction (e.g., software-as-a-service (SaaS) subscription agreement).  While templates can be and are leveraged, some fine tuning is always required to help ensure the document reflects the business needs of the client.  Pressure exists to accelerate the contract generation process.  Likewise, pressure exists to accelerate the contract negotiation and modification process.  Contract execution, the most straightforward leg of this three-legged stool, has been automated, by vendors like Docusign.  Contract management systems, essentially specialized CMSs (content management systems) are available.  The holy grail, then, would be systems to automate contract generation, negotiation, and modification.  Artificial intelligence (AI) could help.  From my vantage point, the contract automation market is fragmented.  The market segments (solo or small law firm, large law firm, small in-house, large in-house, to name a few) are vastly different in terms of needs, practically eliminating the possibility of a one-size-fits-all solution.  Accordingly, a modular solution could make sense here.  At any rate, focusing on one of these segments, then tackling the others, would be sensible. 

More broadly, and conceptually, fully disintermediating attorneys from contracting processes is not advised, for many reasons, including foregoing the always-important consultative process in developing and negotiating agreements, not fully appreciating context, the nascent state of AI technologies, losing attorney-client privilege, and so on.  At the same time, invariably some disintermediation will happen, with attorneys taking on more of a supervisory role for high-volume commercial transactions and perhaps for lower volume ones as well.  

In my last article (The Path to Efficient Contracting), I provided suggestions for streamlining contracting.  I continue here, under the umbrella of modern contracting.  In creating optimal contracts, consider the following: 

• Focus on clarity (unless you believe you are advantaged by being intentionally vague, and if so, we should chat).
• Use Plain English (or French, Spanish, German, etc.).
• Appropriately allocate risk. This is more complicated than it might seem. Counterparties rarely have the same risk profile in respect to a given transaction, and for this reason across-the-board mutuality does not make sense. A concrete example might help. Consider a zero-dollar product evaluation license agreement. The terms should be one sided, in favor of the vendor, because it can lose millions if the customer (licensee) violates the license and infringes its intellectual property rights.
• Focus on ease of compliance and enforcement. How easy (or hard) will it be to determine whether or not the other party is complying with the agreement? Conversely, as a customer, how easy will it be to comply with the agreement (and to demonstrate compliance)? Even better, is there a technological means to help ensure that the other party is complying with its terms? Audits, unless entirely electronic, are costly, and the most advantageous contract is almost useless without an easy means to verify compliance.
• Be mindful of market terms (and the reasons behind them), but note these should always be secondary to proper risk allocation. The same goes for true balance, fairness, or reasonableness in a contract, unless it happens to reflect the actual allocation of risk.
• Resist the urge to bloat template agreements by including every possible corner case. If a small issue occurred ten years ago and has not happened since, it is not an issue (worthy of valuable real estate in the contract at hand).
• Use examples to illustrate complicated concepts and, especially, calculations. Tables are helpful as well, so long as consistent with the actual provisions.
• Less is more. Consider a ten page limit (ten point Arial font). Page limits are, of course, arbitrary, but contracts can always be shortened, when the right priorities are set. Shorter (well-constructed) contracts can reduce review and negotiation time and help focus the parties on the real risks.
• Clients expect greater velocity. This will challenge many attorneys, already overburdened by document review and other legal work. Thoughtful velocity is a good thing, so the question is, how can the review process be optimized to focus the most senior, experienced attorney on the few key issues and to help that attorney recommend a course of action on those.

Comments welcomed.