Levels of Contract Template Dysfunction, from DEFCON 5 to DEFCON 1

I figured that rather than just speaking generally about dysfunctional contract templates, it might be helpful if I give you a sense of the different kinds of dysfunction I see. So I’ve co-opted the “defense readiness condition,” or “DEFCON,” alert state used by the U.S. armed forces. It prescribes five graduated levels of readiness (or states of alert) for the U.S. military. It increases in severity from DEFCON 5 (least severe) to DEFCON 1 (most severe). With your indulgence, I’ll do just three.

DEFCON 5

Contract: Master services agreement.

Approach: You pride yourself on using modern contract language. But you don’t follow a comprehensive set of guidelines, so to some extent you improvise and rely on conventional wisdom.

Characteristic Dysfunction:

  • Use of will throughout instead of shall, assuming that fixes verb-structure problems. In addition to the resulting muddling of language of obligation and language of policy, the template exhibits a range of verb-structure problems, including (1) stating as obligations what should be conditions, (2) use of buried-actor policies, including the structure will be payable, and (3) use of may to mean “might” in restrictive relative clauses.
  • Enthusiastic use of defined terms, with most being defined in a definition section at the front of the body of the contract. So the first thing the reader encounters is a bunch of boring stuff instead of what they really want, which is the deal terms. And the reader is forced to flip back to the definition section each time they encounter a defined term with a non-obvious meaning.
  • Use of represents and warrants ostensibly to introduce statements of fact. By itself, that’s a bad idea (as explained in this article), but a further problem is that what follows isn’t limited to statements of fact. Instead, it includes obligations and statements of future facts (in other words, more obligations). The giveaway is use of the word will.

Cost: The template is 3% longer than it needs to be; it takes 5% longer to read than it should; and the scattered misconceptions incorporated in it could conceivably result in a contract dispute.

Solution: You don’t have to fix this. But if you use the template often enough, the time and money saved from making it a bit clearer would start to add up. And if you run a tight ship and want all your templates to be consistent and orderly, you fix it, no questions asked. It wouldn’t cost much to fix it, assuming you enlist a contract-drafting specialist.

DEFCON 3 

Contract: Supply agreement.

Approach: You’re a traditionalist. Not by conviction, but simply because you don’t know that there’s an alternative.

Characteristic Dysfunction:

  • Use of all-capitals archaisms, including WHEREAS.
  • Chaotic verb-structures, the most obvious feature being drastic overuse of shall
  • Promiscuous use of strings of synonyms or near-synonyms, indemnify, defend, and hold harmless being just one example.
  • Use of multiple efforts standards.
  • Boilerplate that’s bloated (the governing-law provision) or meaningless (a successors-and-assigns provision).

Cost: The template is 2o% longer than it needs to be. It takes 30% longer to read than it should. And the scattered misconceptions incorporated in it leave the reader scratching their head and could conceivably result in a contract dispute.

Solution: You start over, preserving whatever deal terms make sense but expressing them in clear and modern contract prose. And you retain a contract-drafting specialist.

DEFCON 1

Contract: 150-page patent license agreement.

Approach: Traditionalist on steroids.

Characteristic Dysfunction:

  • Blocks of text that take up most of a page.
  • Chaotic structure.

Cost: The template is 35% longer than it needs to be. It takes 45% longer to read than it should. And the disorder and complexity give the reader a migraine. Who knows what the consequences might be.

Solution: You start over, working with a contract-drafting specialist to make sure you don’t make the complexity more complicated than it needs to be. Be prepared to spend real money: it’s worth it, given the value of these deals.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.