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User-Friendly Contracts

June 7, 2012

Those who follow IACCM already know that we are enthusiastic advocates of user-friendly contracts. That means contracts (and contracting processes) that are designed to respond to user needs – simple to execute, easy to understand, of practical help in reaching goals. Our enthusiasm is not simply because we beleive that service providers should focus on their users; it is also because it reduces risk. A user-friendly approach will gain increased adoption; and it will also ensure more use of the contract to support implementation and performance. So who could object to that?

Well, of course, many contracts professionals find a myriad of reasons why such a radical change could be undesirable. But perhaps the biggest objection is that it is unfamiliar and may demand skills that we, as a community, do not currently possess.

Today I was once again in Finland where we held a member meeting and one of our sessions focused on the usability of contracts.. It was led by Helena Haapio and Stefania Passera. Here is a brief summary of their presentation:

“User-centeredness is a fundamental principle in the design of artifacts. What designer deliberately makes their product hard to use?

Today, contracts are designed primarily with lawyers and courts in mind. Yet lawyers and courts are secondary users; by designing for them, we increase the probability that they need to be involved – is that really our goal?

New collaborative, networked and service-based businesses need new models that are not based on the old industrial world, so it is time to re-think the way we go about contracting.

Stefania reported on a test involving a traditional contract and new form of contract, using graphics and simplified terms. The terms themselves were the same. They were provided to groups from Sales, Legal and Sourcing, with half receiving the traditional agreement and half the new agreement. They were then given a questionnaire to test their understanding of the agreement.

  • The percentage giving correct answers was 72 v 60%
  • The time taken to answer was 146 v 224 seconds average
  • The frequency of skipped questions (unable to answer) was 1 v 4

You can probably guess which version of the contract achieved the better result.

This topic is a significant one in our recent study on ‘the future of contracting’. In fact, I have realized that the issue is in some ways less about reforming the contract itself and more about inserting term selection into front-end requirement and bid processes. If we could have the deal or relationship owner making more intelligent selection up-front, then the whole contracting process would benefit and become quicker, more accurate and more valued. So as user-friendly professionals, I think we should be embedding charts, graphics, flow diagrams into the bidding or RFP process so that users select the type of termination provisions, price models, performance criteria that they want to include.

Even if we then feel compelled to draft these into a formal contract, we can re-use the relevant graphics when we move to implementation – and it means the users at both inception and delivery gain a very different experience and one that is relevant and useful to their needs.

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