As one of the assignments in my Penn Law contract-drafting course, this semester I once again asked my students to redraft part of a contract currently being used by a company.
This time, I selected a template master services agreement submitted by a Fortune 500 company in response to this May 2008 post. The process this time around was the same as in previous semesters—for more on that, see this December 2007 post about the 2007 redrafting project. First I annotated their contract through the first four sections (two two-column pages, or 2,200 words) with 276 comments, many of them referring to sections of MSCD. Then with input from my students, I redrafted that portion of the contract. I ended up with something that was 25% shorter and, I’d like to think, dramatically clearer and easier to read.
Last Monday was our last class of the semester, and it was devoted to a conference call with lawyers from the company. I was uncertain what to expect, as the three previous redrafting projects had involved some frustration.
But our hour-and-a-half call went well. No defensiveness or dismissiveness—just discussion of how our redraft would, or might, need to be adjusted to reflect how the company’s transactions actually work. In other words, as significant as our language changes were, the company’s lawyers took them in their stride. That’s as it should be. My main contact at the company had this to say:
Everyone wanted to make sure you knew that it was greatly appreciated and provided a fresh insight into how people who aren’t so “in the weeds” with the forms every day see it. I’ve already used your revisions and principles in revising one of the other forms.
Of course, any redrafting project inevitably requires that one address both language and substance, and the company’s lawyers were uncertain about the substantive implications of some of our changes. For example, I had deleted a provision stating that certain sections would survive termination. (For more on that, see MSCD 12.356 and this blog post.) The company’s lawyers wondered whether deleting that provision would mean that after termination the company would lose any right to indemnification. I responded that no, it wouldn’t, and some quick post-call research confirmed as much: As a general rule, one can bring claims for indemnification until the applicable statute of limitations expires.
But more to the point, as a matter of course I specify in indemnification provisions how long the indemnified party has to bring claims. The company lawyers were nervous about that, in that the company is invariably the one bringing any claims for indemnification. But saying that parties may bring claims for indemnification until the applicable statutes of limitations expire doesn’t change the parties’ rights—instead, it just acknowledges what the law says.
More generally, our call left me considering, once again, what a company stands to gain from redrafting its contracts in this manner. I routinely make to companies the following points:
- Contract language isn’t like regular narrative prose; instead, it falls somewhere on a spectrum between regular narrative prose and computer code.
- Contract prose is uniformly problematic—I have yet to find a contract that didn’t need significant help.
- Because contracts regulate conduct, the risks associated with screwing up contract prose are much greater than they are in the case of regular narrative prose.
- The inefficiencies in a given template manifest themselves each time you use that template. If you use a template hundreds or thousands of times, that’s a heap of inefficiency, and it will cost you considerable amounts of time and money.
Ultimately, deciding whether to redraft your templates involves a relatively straightforward cost-benefit analysis.
Will there be a 2009 redrafting project? I think so. Redrafting is a good exercise for my students, and knowing that someone ultimately might be able to make use of our work makes the process more rewarding. And it’s also useful for my students to be privy to the process by which transactional lawyers pick over a draft, debating what works and what needs tweaking. You can expect me to run another beauty contest in spring 2009.