Simplifying Contracts

Reader David Munn recently wrote this item regarding an interview in which Tim Cummins of the International Association for Contract and Commercial Management asked the heads of Legal and Audit at Scottish & Newcastle, one of the world’s largest brewers, about their contract simplification program, called Pathclear. Click here to go IACCM’s web page about the interview; click here to see S&N’s slide show on the subject.

Here’s what IACCM had to say by way of background:

About 5 years ago, the Legal group at Scottish & Newcastle decided to challenge this traditional view. They were overwhelmed by the volume of contracts to review; they were exhausted by repetitive negotiation of terms that added little or no value to the business; and they were tired of being seen as the pariahs that stood in the way of getting relationships closed.

So they embarked on a radical reengineering initiaitve that has resulted in transformation in the way many trading relationships are negotiated and managed. Not only have the contracts themsleves been dramatically simplified and reduced in size, but other sacred cows have also been sacrificed. For example, many relationships now operate without fixed term; frequently there are no volume commitments; they have even dispensed with service level agreements and liquidated damages.

The results? With several billion dollars of spend and revenue now under their new forms of agreement, they have observed:

  • Growing collaboration between trading partners, with focus on maximizing value and performance
  • Reduced contention and disputes
  • Shorter lead-times
  • Legal viewed as a critical business partner and change-agent, involved early in strategic discussions and intiaitives

David says that the sample contracts S&N provided to IACCM were indeed short—two pages of regular-size print rather than ten or more pages.

I haven’t seen any of these contracts, but I’m sympathetic to the approach. I think that the choice boils down to the two extremes—radically short or comprehensive. When I’m working on an agreement that doesn’t warrant, say, a comprehensive confidentiality or notices provision, I often find it tough to whittle the language down. In the right context, it might be simplest to dispense with most of the usual protections and instead rely on the relationship of the parties to prevent dispute and, should a dispute arise, rely on contract law’s default rules to fill in the gaps.

The dichotomy of short and simple versus long and comprehensive reminds me of the traditional distinction between the civil law and common law approaches to contract drafting. (That’s something I discussed in this blog post.) As in that context, for the short and simple approach to work all parties would have to buy into it. If one party prefers the comprehensive approach, normally that’s the approach that would prevail.

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.