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Maintaining balance in ‘the rule of law’

July 15, 2013

Last week, I was contacted by an IACCM member who was struggling with questions about internal authorities related to contracts and negotiations. Their company – a large multi-national – had sought external recommendations on the role of lawyers in providing contract drafting, negotiation and advisory services. They wanted to determine the right balance between the use of the in-house legal team and granting authorities to their trained contract managers.

As brief background, this company has historically tended to use lawyers for front-end sales support and contract managers in the post-award environment. However, experience has led them to appreciate that contract managers bring a broader perspective, enriched by the practical experiences of implementation. Therefore, they are often better equipped to provide advice and avoid business pitfalls than their colleagues in Legal.

Based on this realization, they went to a top international law firm to obtain a risk assessment. They asked for advice in each major jurisdiction regarding the extent to which the role of the contract managers could safely be expanded. As the answers came in, they broadly supported a re-balancing of authorities – until it came to the US. There, they were told, it was extremely risky for anyone but trained counsel to make any decisions related to contract terms, negotiation or advice. In fact, the implication was that far from expanding authorities, they should even be cutting back on those that already exist and ensuring that every deal was subject to ‘active supervision by a qualified attorney’.

The reasoning appeared to be based on fear of the potentially disproportionate penalties generated by the US legal system and an argument that its relative unpredictability is something that can be managed only by the cognoscenti – in this case, the practising attorney. If true, it suggests that we have reached a point of major imbalance, where ‘the rule of law’ is becoming somewhat tyrannical in its application. Certainly that is a growing concern for businesses outside the US, for whom the fear of litigation within the United States has become an increasing concern. That fear is driven by the sense of unpredictability and shifting standards which make litigation a lottery.

Of course, an alternative (perhaps cynical) view is that the US has far too many lawyers and they need work. They would also prefer this work to remain highly paid. Therefore it is in the economic interests of any law firm to portray levels of risk and complexity that demand the expert intervention of counsel, whether external or internal. Grasping control over contract management disciplines is therefore just a further extension of already broadening control and influence.

My simplistic view of this is that lawyers are an important stakeholder in the contracting process, but as a specialist function they are not the natural owners of that process. Good contracting, rather like any other form of complex integration,  demands a consolidation of specialist views and wider stakeholder interests. Maintaining balance is key to good decision-making and to successful business outcomes. Dominance by any specific group undermines that balance.

What are your thoughts regarding the role of lawyers in business contracts and, in particular, the allocation of roles in drafting, negotiation and contract advice?

7 Comments
  1. Lance D Jameson permalink

    Unfortunately my experience over the last nearly 30 years is that whenever you ask almost any Licensed, Chartered, or Degreed Professional (Lawyer, Engineer, Quantity Surveyor) the question “Who is best qualified to perform a given task or role?”, the Professional will far too often respond that only those who are similarly licensed, chartered, or degreed are qualified to provide the service or opinion. Unfortunately it is precisely this homogeneity which often contributes to failures, communication breakdowns, or disputes, due to risk myopia. It is curious that the number one contract clause which is most often the source of post award disputes in the engineering and construction space is Completions (i.e. what constitutes finishing). The development and establishment of what the parties agree constitutes completion isn’t solely a legal, commercial, or technical undertaking, rather it is precisely the type of definition best arrived at through full engagement of highly experienced generalists. It is, unfortunately, these highly experienced generalists which too often get excluded in Professional homogeneity. It’s possible that the answer received regarding the extent at which the role could be expanded was, in fact, a correct answer. Perhaps they were asking the wrong question. Perhaps the question was better framed, “What team engagement will deliver the best overall results?”.

    • Lance
      Thanks for this observation. I agree with you. Professions clearly bring benefits in terms of the depth of knowledge they offer, but the counter-side to that is the protectionism that you mention.

      Business relies upon a carefully constructed contention system through which relevant stakeholders are given a voice. When any specific group or function gains a disproportionate influence, it is due to a failing by senior management to ensure balance.

      I agree with your observation that this answer was not surprising, based on the question that was asked.

      Tim

  2. Jorma Vartia permalink

    I agree with your conclusion Tim. Good post and interesting question. Leading contract negotiations requires many other skills in addition to awareness of the legal issues. Most contractual terms are not “legal questions” as such and negotiating them requires good business understanding and awareness of products and services involved. Even the more legal clauses should be understood by non-lawyers and we should not overcomplicate them. I would like to see contract generators in use and business people being able to tackle most contracts by themselves. Model contracts can and should also be used to harmonise contracts and enable contracting without lawyers. Lawyers would then be involved with more complicated and non-standard situations.

  3. Steve Schwarz permalink

    I believe that Lance has encapsulated your article in one word: “homogeneity “. Let me say at the outset that I fully agree with all sentiment that has been expressed both in the article and consequent comments. The one point that, perhaps, is being overlooked is that at some point a decision will have to be made concerning some matter (whether it be the conduct of the negotiation, the ‘trade-offs’, or the acceptable end-point) and that the comfort-zone of the person making that decision will inevitably dictate the outcome. By way of example: In negotiating a contract I found myself trying to explain particular insurances (in the medical space) to my (now) customer: My audience (over a number of sessions) included a reasonably large number of lawyers (customer-internal and -external), finance professionals, operations managers and contract specialists. I found that the only people who understood the implication of medical malpractice insurance were the contracts specialists. However, my customer is risk averse so it was the view of the lawyers that prevailed. Let me just highlight the fact that this situation occurred in a litigation-benign environment (in other words, not in the US). The end result was that there is no added protection for the customer but the impost has driven up the customer’s cost substantially (a fact that I went to great detail to emphasise during the discussions). So, my feedback in relation to the article is that whilst contract negotiation can be considered by a broad group of people (and this should occur) effecting “homogeneity”, the likelihood is that a sub-group (specialisation-based) will have a louder voice depending on many considerations, not the least of which will be the party’s appetite for risk. Once the “considerations” are identified, the negotiator will have a better opportunity to drive rational discussion.

    • Steve
      Thanks for this very interesting example. Outcomes such as this tend to be influenced by a couple of factors: 1) the realities (or perceptions) of relative power among the review team and 2) the readiness of others to grasp issues or challenge positions. Many times, it seems easier to let the group or individual with a strong opinion have their way.

  4. Tim,

    As Steve has mentioned “whilst contract negotiation can be considered by a broad group of people (and this should occur) effecting “homogeneity”, the likelihood is that a sub-group (specialisation-based) will have a louder voice depending on many considerations, not the least of which will be the party’s appetite for risk”.

    Both your article and the comments point out that a diversity of views is best almost in any situation and that this is not achieved by trying to have an “homogeneous” team. Whose view prevails in these groups, could be a question for another post, since even if there is a vocal sub-group, or risk-appetite in the group, outcomes are influenced by a multiplicity of factors.

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  1. How Much Is A Contract Manager Worth? | Commitment Matters

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