Reducing the Burden of Contracts Through Risk Management

Business Law Today contains an article entitled Data, Contracts, and Making Hard Decisions—Changing the Way We Manage Risk. It’s by Jamie May, associate general counsel at University Hospitals in Cleveland, Ohio. I had the pleasure of meeting Jamie a few years ago, when he wore a different hat, and I’ve corresponded with him sporadically.

Here’s the first paragraph of Jamie’s article:

Contracts are a ubiquitous feature of modern business, and their value is rarely questioned. The proliferation of contract-management teams, commercial attorneys, and a dizzying array of contract-related software tools are testaments to our devotion to contracts. As cost and resource pressures on in-house business lawyers rise, it is time to rethink this devotion and to spend more time and money on more robust risk-assessment and risk-management strategies.

Jamie’s thesis is incontrovertible: assessing risk better could allow companies to simplify some of their contracts and eliminate others entirely. So read the article!

But while I’m at it, something in the article caught my eye. After noting that contracts professionals spend much of their time in negotiation theater (my terminology) and that traditional contract drafting is a hot mess (my terminology), Jamie says this:

One solution is to wait until a critical mass of lawyers adopts a rigorous set of contract-drafting parameters (such as Adams’s A Manual of Style for Contract Drafting). Given the nature of lawyers and the history of our profession, I am not holding my breath. A better way is to systemically reduce the importance businesses assign to contracts in favor of robust risk assessments and pragmatic risk-management strategies.

Two thoughts come to mind:

First, I’m not sure that “better way” is the, uh, best way to express the comparison Jamie offers. Modern contract drafting is about making sure that your contracts are clear, concise, and avoid the unnecessary risk that comes from uncertain meaning. By contrast, risk management is about assessing external risk and determining whether to address it in a contract, and if so, how. There would seem to be little overlap between the two, so it’s not an either-or choice—you should do both.

And second, I think that of the two challenges, clear contract drafting is actually easier to achieve. For one thing, one of the saving graces of contract drafting is that it’s not subject to popular vote. The only people you have to convince of the value of clear drafting is the people on your side of the table and the people on the other side of the table. And if you’re sensible and enlist expert help and automate your drafting using Contract Express or something comparable (if deal volume, deal value, and deal customization warrant it), you can quickly implement clear and tamper-proof templates. By contrast, risk assessment seems like something of a black art.

Jamie’s article is the second of three. Go here for the first one; I look forward to the third.

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.