In the last several years, I’ve worked to create a risk profiling tool. It’s starting to take shape – and yet be flexible enough to change for almost all situations. At the end of the day however, the overall risk is some combination of dollars and business practice and the issue is not whether there IS risk, but whether the risk attached to the specific deal is acceptable given the estimated/proposed return.

But I do think that there is a way for the legal and business folks to come together – and I’m happy to be in a position where the IT business folks actually WANTED a “contracts guy” because they realized that they were not signing good deals and were bogging down a small legal staff with sheer volume. In fact, this has been the case at the last two places I’ve been affiliated with… and I think it’s becoming more and more common. Lawyers can serve as contracts people, of course… but, while you might not agree with me, I’m not sure that they’re always the BEST people to do the job.

As a contract negotiator, I consider my legal education to be a “secret weapon”. It’s something that helps me to better understand some arguments and some language. But some of the best contract professionals I’ve ever known have degrees in English or Business. As a result, I believe the person best suited for “doing” contracts is the person who can learn the contractual language needed for given situations, has the creative mind necessary to work around problems, but also has an eye for business issue spotting and resolution. This person has to be able to serve as translator between the business unit and legal… paving the way for mutual understanding and risk balancing.

Contract management systems are an interesting tool to help manage this risk. It only makes sense that some method be available to store, track, search and retrieve contract information in a central repository. I happen to be biased towards a particular system that I like and have a lot of experience with… but at the end of the day, it comes down to the system that works for you and your organization that is best.

Something as simple as a spreadsheet with basic contract information and a scanned-document folder on a network drive is sometimes all that is needed. More robust applications, from organizations such as Emptoris, Nextance and Procuri are, of course, premium versions of such basic store/retrieve models.

In all, though, I think these issues have been dealt with successfully by organizations who have dedicated contracting staffs (yes, I realize I’m biased). If chosen wisely, these individuals will be able to perform the balancing act required to satisfy both sides of the house.

Testing phase
* Contractor will perform all the unit testing necessary.

My response, “well what the hell does that mean?” The whole sentence is filled with “Who gets to decide” questions. In the end, I decided that since we had an entire acceptance criteria section that this probably doesn’t make too much difference (it’s still their problem if they didn’t do enough testing).

I would like to see Ken write something about good practices with respect to service agreements: e.g. when/how should an SOW/response to an RFP/specification/etc. become part of the agreement? How should one deal with the obvious problem of legal terms slipping into seemingly innocuous documents, etc.

My only addition to this mix is that there is still going to be a tension between the undisputed value that a good attorney can bring to the negotiation table versus the costs of that value. If we’re investing thousands of dollars in a lawyer for a deal that has a risk profile of only a few thousands of dollars, the value just isn’t there.

Of course, that leads to the much harder question of what the risk profile REALLY is in a deal. Business people like to equate ‘how much are we paying for this thing’ to the exposure to the company. Often, that number is merely the risk profile for that business person’s own budget — Somebody else takes the hit if the thing goes to pot (more often than not the always over-budget litigation budget of the legal department). I’ve always wished I could come up with a good means of truly quantifying risk, but the answer is usually that actually quantifying it would cost more than the contract itself.

Which usually leads to papering over all of the inadequacies by making sure that my client has plenty of insurance…

In all, the battle posed by the contract admins above versus the lawyers above versus the ‘business people’ who are absent in today’s debate is one that I’ve never resolved in over a decade of practice in many different settings. I still lose sleep over it, and probably will until I decide to burn this shingle and move on to a less stressful profession like bomb-defusing or the like.

I am often reminded of the concept of willful blindness – but I strive to remind myself that business people are neither dumb nor unappreciative, although at times it seems like it as they gloss over the details.

My most gratifying experience in this area was when I was asked to help wind-down a program for which I had drafted almost 40 fairly complex contracts, each one (for the most part) an exercise in “what the hell do we have to have indemnification for?” or “aren’t those termination provisions a little one-sided?”.

The answer to both questions was (and still is) “you will thank me later for ferreting out the devil in those details”, as we were able to terminate each of the agreements with a minimum of distress and cost to the company.

Early in my legal career I asked a senior laywer if he ever felt like he was all that stood between a healthy business relationship with a potential partner and a series of gaffes that would leave the company exposed. I think that you know his answer.

Ken, one of the topics close to my heart is what to do with respect to actual contract management – i.e., saving and sharing the drafts and the final documents – there are lots of software packages out there, and I have written a couple of custom apps. As a strong believer in disseminating contracts to the parties that need to understand and work under them, I’d love to hear your opinion on this facet of the interface between business and legal.

My experience in both situations suggests that the “business” folks think that they have negotiated the best deal, word-smithing be damned. However, it never ceases to amaze me that the business folks are unable to even comprehend the risk profile of a contract, that is, the hidden cost of the contract. The classic examples surround the indemnification, limitation of liability and warranty clauses, which some business folks see as boilerplate language.

Nevertheless, even where the business people appreciate those points, they still see problems where lawyers do their thing: so-called “word-smithing”. That is, where a lawyer takes a negotiated (or more frequently not negotiated) clause/term and runs it through the legal word processor. Business folks don’t see that as necessary, but more often than not it’s a lawyer’s attempt to allocate risk according to the business terms: risk of ambiguity, risk of unintentional assignment of rights or obligations, risk of having to defend the wording in court, etc. This, most business folks would argue, doesn’t add value and instead is the source of the bottleneck.

On the other hand, a lawyer not conscious of the business deal and the risk/value of certain changes risks alienating the people on his own side.