I’ve thought it clear enough why companies don’t clean up their template contracts: Those who make the decisions are unaware of the problem. Or they’re aware of the problem but are unwilling to do anything about it, because for them the near-term cost of addressing the problem—in terms of expenditure of resources, loss of clout, or injury to their reputation or their ego—outweighs the risk and long-term drain of contracts-as-usual.
But recently someone suggested another reason: that his company is hesitant to upgrade their contracts because customers react with suspicion to any changes in their contracts with the company.
How much of an issue is this generally?
7 thoughts on “Are Your Customers an Obstacle to Change in Contract Drafting?”
It is an issue, and a perfectly valid one. A change to the terms means that the counterparty will need to review them, and possibly incur the cost of engaging outside counsel. This won’t make the company very popular with its customers. The company may also need to negotiate with and agree the terms with multiple counterparties, so there is further cost for itself too. So, while there will benefits from the changes, a company needs to have cost-benefit issues in mind (including its customer relationships) when deciding whether to make extensive amendments.
Of course, companies can and do review and change their terms periodically. When they do so, they can and should consider drafting issues. But fewer changes means less fuss, and therefore less cost in terms of time and money.
When we draft contracts for clients based on our templates, and then update our templates for drafting reasons, we quite often keep using the older versions for existing clients taking on new customers – it is better for them to have consistent agreements across their range.
More than you might think. I’ve encountered that same reaction from clients. I’ve also encountered fierce resistance to “plain English” drafting from opposing counsel, I can’t tell you how many of my “colleagues” insist on inserting jargon, needless elaboration, etc. when I send them drafts to review.
I can’t remember whether this discussion happened here or on Adams Drafting, but in the spirit of “browbeating by first paper” I have come up with a header to use when sending a first draft of something. It goes like this:
This document is drafted to
comply with K.A. Adams, A Manual of Style for Contract Drafting (ABA, 2d ed. 2008).
Capitalization, verb selection, syntax and other stylistic elements should not
be changed unless they conflict with the substantive agreement of the parties
or are unclear in meaning.
I figure it can’t hurt to try. Most of the time nobody objects, either.
It’s a very large issue. Clients don’t understand why you have to make changes – as noted below, it’s something else people have to read.
“If it was good enough before. . . .” As noted below, other lawyers wary of “simple” language. Even the “better thinking” re: use of “shall” gets other lawyers all bollixed up. Minimize changes with existing clients – just do things that have substantive advantages. Don’t even change the font or type size.
I see this issue come up all the time with the banking clients whenever their customers (corporate borrowers) seek to refinance their existing credit facilities. Inevitably the customer asks to use the same loan documentation as their existing credit facility for all the reasons Westmorelandia points out. Occasionally, even new customers will ask a bank to document a new credit facility using a current loan agreement they have with another lender/arranger. The banks often oblige and as outside counsel we have to go along, making as few changes to the requested form as possible. The end result is often a mess, and while it may save time for the customer’s counsel requires extra diligence by the bank’s counsel. Stopping this cycle requires two sales jobs. First the bank has to be sold on the value of starting with a fresh and rationally drafted agreement, and the bank has to then in turn sell their customers on the same idea. Given the other competitive pressures involved, it is often a difficult barrier to overcome. I imagine that similar dynamics would play out with any business that re-executes new agreements with its customers on a periodic basis.
This issue arises quite frequently. Clients and their customers become used to a template and react badly to any change. One reason is that the client’s customer feels compelled to seek legal advice and, as we all know, that costs money and time. Correction of grammatical errors, capitalization and the like should wait until a substantive change must be made.