Tim Cummins is the head of the International Association for Contract and Commercial Management (IACCM). Over the years I’ve discussed with Tim the future of contracting. After a recent exchange of emails, we decided try a more formal approach. We agreed to address on our respective blogs the following proposition: We want new technologies to sweep away traditional contracting, so we can have faster, more efficient, and more cost-effective contracting. In this post on his blog, Tim gives a hearty “Yes” to this proposition; below, I give an equally hearty “No”! We invite you to chime in, whether on Tim’s blog, my blog, LinkedIn, or Twitter.
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For most companies, the contracts process is a problem. It’s too slow, too expensive, and too often it results in disputes and other unsatisfactory business outcomes.
Tim Cummins and I agree that change is desperately needed, but we have different ideas about what that change should look like. Tim wants cutting-edge technology to sweep away the old order. I want change that’s driven by human expertise, with technology—and relatively unglamorous technology at that—only helping to scale up that expertise. So I say “No” to the proposition under debate.
The Problems
Let’s start by considering the different stages in the contracts process and the problems associated with each.
- Drafting: Contracts use archaic, bloated, legalistic prose; drafters rely on misbegotten conventional wisdom; deal terms don’t make sense, express inefficient deal mechanics, or are too one-sided; and contracts are cumbersome because drafters are too risk-averse.
- Reviewing counterparty drafts: It’s time-consuming, and it’s made worse by drafts exhibiting shortcomings listed in “Drafting,” above; and improvised review has the potential for human error.
- Negotiation (before and after drafting): It’s time-consuming, and it’s made worse by drafts exhibiting shortcomings listed in “Drafting,” above; and lawyers are prone to “negotiation theater”—haggling over legal issues that are peripheral to the deal.
- Signing: It’s an administrative nuisance.
- Monitoring performance: It’s an administrative nuisance, and it’s made worse by drafts exhibiting shortcomings listed in “Drafting,” above; and improvised monitoring has the potential for human error.
Not a Technology-Only Solution
It’s clear from this summary that the biggest source of dysfunction in the contracts process is shortcomings in what contracts say and how they say it. And the harsh reality is that because of an insurmountable garbage-in-garbage-out problem, technology can only ever play an ancillary role in fixing that.
The technology that Tim appears most interested in—artificial intelligence, natural language processing, advanced analytics—can tell you how contracts address specific issues, but it can’t tell you what’s clearest and what makes most sense for a given transaction. Good luck drawing any conclusions about the implications of, say, efforts provisions or the phrase represents and warrants from letting technology loose on a bunch of contracts.
The Foundation
Instead, we need to offer a new model, one based on old-fashioned expertise.
The first step toward a rational contracts process is implementing comprehensive guidelines for clear contract prose. My book A Manual of Style for Contract Drafting, now in its fourth edition, is the only work that fits the bill. It’s aimed at an international readership, it has sold tens of thousands of copies, and no one has seriously challenged its authoritativeness. If you make decisions regarding contract language without consulting it, it’s likely that you’re copy-and-pasting, relying on flimsy conventional wisdom, or improvising. That’s unlikely to lead to optimal contract prose.
But a comprehensive set of guidelines for clear contract prose isn’t enough. In a copy-and-paste world, it’s unrealistic to expect those who work with contracts to stop the contracts machinery, dismantle it, retool it, then put it back together. Furthermore, it’s unrealistic to expect countless companies and law firms to each tackle that task and devote to it the necessary resources. And they wouldn’t have access to the necessary expertise—contract drafting is best left to specialists. There are precious few of those, as I explain in this post.
Template Library
But I’m not about to recommend that we train an army of contract-drafting specialists. Instead, what’s required is a public, subscription-based library of templates prepared by contract-drafting specialists who follow a comprehensive set of guidelines and are assisted by subject-matter experts. If automated, the templates would allow a considerable amount of customization. (Technology for automating templates has been around for years, in various forms.) No such library yet exists, at least not one as ambitious as what I have in mind.
Instead of just building templates, parking them online, and waiting for people to use them, it would make sense to work with companies, law firms, and trade groups to identify where there’s a real need for templates that would allow them to quickly create contracts that are clearer, more relevant, and more cost-effective than anything they could build on their own.
Such a library would also make ancillary technology more effective. For example, technology aimed at speeding review of counterparty drafts has to be told what to look for. That information could readily be gleaned from templates in the library.
Prospects for Change
It would be rash to assume that any initiative to improve contracts would bring sweeping change to what is a precedent-driven corner of a notoriously conservative profession. In any process of change, the laggards might well outnumber the adopters. But give people something that makes their lives easier, saves time and money, makes them more competitive, and reduces risk, and there’s a good chance they’ll use it.
Contract managers should consider being more assertive about seeking change this kind of change. I’ve noticed two recurring themes in commentary coming from the contract-management community: first, that lawyers are responsible for screwing up the contracts process, and second, that technology will save us. Both threads are present in Tim’s post in favor of the proposition under debate.
Those themes suggest that the contract-management community has ceded to lawyers primary responsibility for what’s in a contract. That’s unwarranted. Yes, lawyers might have some additional years of education, and they’re notorious for poaching on others’ turf. But nothing about contracts mandates that lawyers call the shots. (See this blog post.) Contract provisions that require lawyer expertise—primarily those addressing dispute resolution—tend to be a peripheral part of the deal. Anyone who is familiar with deal mechanics and is an informed consumer of contract language can call the shots, whether they’re a lawyer or a contract manager.
If the contract-management community would like to take greater responsibility for contract language without succumbing to the dysfunction of traditional contract language, a template library of the sort I have in mind would be the way to go.
I agree. Lawyers and business need to be persuaded of the benefits of clear drafting, and adopt it before we throw in AI or other tools. Otherwise we risk making that task harder. Also, there is no perfect IT solution yet and we should use the time we have to sort out the more fundamental problems that Ken highlights. We could start by training everyone in Microsoft Word. Access to ‘contracts as a service’ would be a great help in lightening in-house lawyer’s work in bulk drafting.
Ken, you 2nd point resonates with me. Every buyer seems to have their own template, which contract managers often stick to without understanding it. Also, these forms are too often written by lawyers that have not read your books. So yes, have some standardized industry or alternative buyer templates/clauses would help a lot in making the process more efficient. On the other hand, as we only represent software and saas companies and draft plain English contracts (to the extent we can), we are seeing the tech industry moving to more and more unique/differentiated offerings (and therefore unique contract terms) that don’t fit into buyer form templates (even though customers want them to). The truth is if buyers would give up on their templates and trying to force vendors to sign their forms (simply bc they are their forms) and instead focused on what is really important to the buyer the process would get a lot more efficient too.
I feel like there have been half-hearted attempts at curated template clauses subscription services. And while lacking consistent guidelines or even put together by ‘experts,’ services such as Practical Law at least get the subscription piece down.
That being said, I think on issue is that generally lawyers can never leave good enough alone. To get to a consistent and clean clause template library, I feel like you need to encourage input from the users (like redline.net sort of strives to do) but then have a Linus Torvalds-like committee of experts that finalize the terms. Coupling that with technology to assist with implementation (whether “AI” to identify like-clauses that may have deficiencies such that they could be fixed or just simply drafting assistance tools) and you could have something.
Now, to brush off my old “Python for Dummies” book and fire-up those open source LexPredict libraries….
Sure, we’ve seen half-hearted. I thought it best not to mention in the post that I’m seeing whether I can put together a suitable template library. I think you’ve seen enough of me to know I don’t do half-hearted.
And the heck with AI, the heck with democracy: it’s time to bring back real expertise!
I think you’d be a great Linus Torvalds :). In any case, play to our egos, but still be a benevolent curator! And, the correct term is “AI” as about 50% of what is sold as “AI” is anything but intelligent.
Hello Ken. My position is the same as yours ie NO – but I add the following commentary from an Australian perspective.
1. Issue of Inappropriate risk allocation: A majority of industry construction industry standard form contracts are applied in this jurisdiction based on inputs from stakeholders – examples include AS4000 (and many others). These are typically modified by owners to move risk to the contractor, frequently risk which is not within the full control of the contractor – which the contractor frequently accepts.
There in lies the problem – whilst drafting can be problematic the root cause for the majority of issues arising is the willingness of the contractor (or provider) to accept too much risk for too little money – I accept this is a sweeping generalization and is not always so.
2. Drafting Issues: Where I have seen drafting as a significant issue it has typically arisen from relatively unskilled people cobbling together a grab bag of clauses from a series of template style contracts without any consideration as to meaning and / or effect which leads to incomprehensibility of the document which takes me to the 3rd point. Unprincipled Negotiation.
3. Unprincipled Negotiation: A typical scenario in the offer of the contract terms is “these are not negotiable” and “take it or leave it” – there is limited or no principled negotiation which results in an inappropriate risk allocation (and in an Australian context contrary to the Abrhamson Principle of risk allocation) which invariable consolidates the problems with 1 and 2 and produces an environment which is ripe for disputation as the contractor attempts to look for every avenue to challenge the validity of the terms and conditions as executed and the acts or omissions of the owner which precludes contractor performance and thereby allowing the contractor to argue breach of contract and / or breach of implied terms and / or other equitable remedies.
4. Delegation of Authority: The defence used by owners or there representatives to suggest they are not empowered to negotiate as “it needs to go to legal” or “needs head office sign off” is a frequent occurrence and is disingenuous. It should be incumbent on all parties to provide people who are empowered to negotiate and have the requisite and qualified staff made available to determine the final terms of the agreement.
Whilst I could go on and on – the point I am making is that the creation of a contract is a very humanistic process and requires judgement – those judgements to be recorded into terms following hopefully a principled negotiation – AI and the like is helpful to ensure there are no cross referencing errors or contradictions which may be created in the final document – but it is a tool to assist and not the be and end all.
Finally, given your location i.e. US, I must say from my experience the documents offered as contracts out of the US are typically poor in terms of syntax, structure, completeness and clarity and persistently fail to use plain English – all to the extent contractor’s regularly charge premiums or walk away. It may well be one of the rare occasions where the US needs to take note and perhaps seek to improve its performance by reference to the English based civil jurisdiction drafting of contracts.
Thank you for those thoughts. No argument regarding US contracts. But A Manual of Style for Contract Drafting escapes being tarred with that brush. In fact, it has plenty for Australian drafters: I’ve given seminars in Australia several times.
I think a template library is awesome. Now there are so many templates, but they don’t have much help. Most of current templates focus on a whole agreement such as sales agreement, lease agreement, etc. I guess it will be better to focus on clauses instead of an entire agreement, such as price&payment, delivery, term&termination, force majeure, merger clause, indemnity…