The Market for Effective Business Contracts

Business contracts are different from consumer contracts. For one thing, business contracts exhibit greater variety than do consumer contracts. But in another respect, business contracts are broadly comparable, regardless of that variety. Allow me to explain.

Consumer contracts are geared to the mundane transactions you and I engage in when opening bank accounts, taking out insurance, signing up for online services, and the like. Although consumer contracts usually drone on, they’re not that complicated. And they’re one-size-fits-all, whether you’re a working stiff or a plutocrat.

By contrast, more tends to be at stake in business contracts, and the transactions tend to be more complicated. So business contracts are conducive to use of a more limited and stylized kind of language than what’s used in consumer contracts. That’s why, for example, I don’t use the first and second person (we and you) in business contracts, and why I use shall in business contracts.

Business contracts are also more varied, both in terms of the kinds of transactions and the heft of the contract parties. But the latter factor has less of an effect on business contracts than you might expect.

At one extreme you might have, say, a one-person technology consulting business (SmallTec) that needs to create a confidentiality agreement. At the other extreme you have a global technology company (BigCo) that also needs to create a confidentiality agreement.

The transaction contemplated by BigCo might well be more complicated than that contemplated by SmallTec, simply as a function of the vastly greater operations of BigCo. But I suggest that where those transactions overlap in terms of substance, there’s no reason why that substance shouldn’t be expressed in both contracts in basically the same way, with the same level of detail. After all, there’s no reason why their respective transactions shouldn’t be equally important to SmallTec and BigCo.

So I suggest that transactions start with a shared core. As transactions get bigger and more complicated, one adds bells and whistles to that shared core.

It follows that the market for effective business contracts is a vast one, with the SmallTecs of the world at one end and the BigCos at the other end. And as we know, the entire spectrum of business contracts is dysfunctional. The BigCos have enough resources and enough ego to muddle through the dysfunction, but everyone else experiences real risk and real financial pain.

One implication is that business contracts don’t come with training wheels: even at the SmallTec end of things, you can’t escape complexity. I’ll consider in a future post how best to help novices navigate that complexity.

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.