Whether Contract Managers and Lawyers Care About Results Is Probably Irrelevant

I noted with interest Tim Cummins’s post asking whether contract managers and lawyers actually care about contract results (here).

Read the post for yourself, but here are the bits that caught my eye:

How many contract and commercial managers, how many lawyers, actually care about the quality of the contracts they produce? How many actively monitor or seek to learn from the operational impacts and issues associated with contracts? How many take time to read research studies or to ask questions about what works and what doesn’t?

In my  experience, most contract and commercial managers have limited ambition to learn, to question or to challenge the status-quo – even those who are functional leaders or directors.

There’s no questioning the dysfunction that infects the contract process, even at companies that have all the resources they need to do better.

But I suggest to Tim that it isn’t due to people not caring. Whenever you’re dealing with a complex system, it might be that the actors are simply swept along.

In the case of the traditional contract process, consider the factors at play:

  • Contracts professionals draft contracts by copying, generally taking it on faith that what was used previously is what works.
  • Due to a lack of guidelines, traditional contract language is chaotic, archaic, and confusing.
  • You don’t get rigorous training in contract drafting. Who needs it when you can copy?
  • Because they have to draft by copying, contracts professionals rely on the flimsiest of conventional wisdom, so it’s routine for contracts to contain provisions that make no sense.
  • The contract process at big companies involves different constituencies handling a high volume of complex contracts with a lot at stake.

So the system is such that whether someone cares or doesn’t care might be beside the point.

For one thing, if all people know is dysfunction, expecting them to fix that dysfunction of their own volition is perhaps unrealistic.

And even if you decide that the contract process could be handled differently, that’s tough to accomplish when you’re a cog—even a big cog—in a complex system.

So what’s needed isn’t for individuals to transform an organization’s current system by caring more. Instead, what’s needed is a new system—a centralized one that uses clear, modern, and consistent contract language, is built using on real substantive expertise rather than phony conventional wisdom, and is powered by document assembly.

For more on all this, see my recent article Dysfunction in Contract Drafting: The Causes and a Cure (here).

Posted in Process | 7 Comments

  • Uninterested Observer

    Contract professionals (and other legal professionals too) do care about results. But caring is mostly irrelevant.

    Once a contract is done (whether it’s the product of a functional process or a dysfunctional process), the legal side of things is removed from administering the contract or activity under the contract. Even when there’s a dispute about what a party should (or shouldn’t) do, the dispute is most often resolved by business folks talking to business folks without ever involving legal.

    The business does not have time or resources to train or update legal professional on the operational impacts and issues associated with contracts. They take the contract, put it in a drawer, and get to work.

    When do contract/legal professionals usually have an opportunity to track results from contracts? When there’s a dispute. And even then, that’s pretty rare as disputes are most often resolved by business people talking to business people without ever reading the contract. If that doesn’t work, the business folks will read the contract and generally come to an agreement on which side prevails (after I went in-house, I was surprised at how often business would talk to business about a contract and reach the same conclusion).

    So after the business has exhausted its efforts to resolve a dispute, they’ll call in legal (but never early on because no one wants legal “holding things up”). But that is a very rare case. So even though we care, the ability of contract/legal professionals to track results in a modern business is pretty much limited to involvement in disputes.

    Re-thinking how we contract is a good idea. But it has to be balanced against the reality that the number of disputes over what a contract means is sufficiently rare that investing in re-thinking the contract is not going to be high on the budget to-do list. In my experience, these kinds of conversations typically end up being lawyer-to-lawyer. So we talk about them in the legal echo chamber. But they don’t have much traction apart from that.

  • Vance_Koven

    Frankly, the sentence that should have attracted your attention was this one: “Just yesterday I published data suggesting that almost one in ten contracts results in a significant claim.” Looking at the previous day’s post showed that, based on a 2013-14 survey by IACCM (not sure who that is, but “CM” probably means “contract managers”) the range of claims frequency went from a low of 7% for healthcare/pharma to a high of 20.7% for construction/engineering. Even at 7% (one in 14!) that’s a mind-bogglingly high proportion of contracts that generate disputes.

    Whether or not a company or law firm adopts a centralized contract-assembly system, those numbers ought to be sobering and should be rubbed in the faces of executives so that they can rub them in the faces of their lawyers. This reflects truly shoddy quality control. If one in 14 widgets a company made generated a complaint, the company would go out of business.

    Of course, it’s also possible that what generates the disputes is not how the contract was written, but the deal itself. Sometimes I think that no matter how clearly a contract is drafted, if a party really wants out, it will kick up enough dust to cause legal headaches. Companies all too often adopt a take-no-prisoners approach to negotiating that discourages long-term relationships and encourages counterparties to seize (or create) the first opportunity to head for the exit. But that’s a subject for another day.

    • Uninterested Observer

      The most significant statistic seems to be that less than .1% of contracts result in a “formal dispute”. There will always be lots of disputes over business transactions. But they are rarely over the contract. And they are usually resolved by the business without ever looking at the contract. Companies just do not want to invest a lot of money and change structures to chase the .1%.

      • Vance_Koven

        I disagree that the percentage resulting in “formal disputes” is particularly relevant. Going to court or arbitration is of course the most extreme situation, where settlement talks have broken down. But disputes with a less catastrophic outcome are significant, too, in the amount of management time required to settle the matter, as well as whatever might be needed to provide redress (such as re-performing services). To the extent these disputes could be avoided through better contract drafting, that would be a major cost saving to the parties. I think the methodology of the study, if I read the blog post correctly, filtered out disputes that were just, in effect, warranty claims, and involved only disputes about what the contract meant.

        • Uninterested Observer

          I guess we do disagree. Disputes between companies, though, are almost always resolved without legal and without even looking at the contract. That’s an accepted part of business, and the driver that would encourage business to invest in improving contracting standards is the “formal dispute”, i.e., the less than .1% of disputes.

          • http://www.adamsdrafting.com/ Ken Adams

            I think I’m with Vance on this: a dispute doesn’t have to end up in litigation or arbitration to have a significant effect. But my evidence on that is purely anecdotal.

            Furthermore, disputes are only one adverse effect of suboptimal drafting, just as car crashes are only one adverse effect of suboptimal engineering and manufacturing of cars. The confusion and delay caused by traditional contract language have to result in companies wasting vast amounts of time and money. It would be hard to come up with a way of measuring that, but you can get a sense of the effect just buy considering what a slog it is to read your average traditional-contract-language contract.

  • Mark Anderson

    Several strands in this interesting discussion:
    (1) do lawyers and contract managers “care” about the quality of their contracts? My sense is that a minority have an ambition to be excellent (if that is what is meant by caring) and the majority are content to meet a consensus threshold of competence – which regrettably is in some environments too low in relation to contract drafting.
    (2) do companies involve their lawyers in routine disputes? That must surely vary from company to company, and vary in different industries, countries, etc.
    (3) can we learn from the operational side of contracts, including disputes arising under them, and from statistical data on such things, how to draft better? Perhaps we can, but I am cautious about the approach that leads to the justification for a wierd clause that runs “oh we really suffered in a deal 5 years ago, so now we put this clause in all our contracts”. In terms of the general technique of drafting, operational experience may be less relevant than using the right approach, eg that in MSCD.
    (4) is it better to have lawyers who care (aspire to be excellent) or a system in place (MSCD etc) that results in better contracts? I think we need both.