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Contract Drafting, Communications & Risk

May 9, 2014

Many contracts remain unintelligible to anyone who is not a trained professional. Often this appears to be a deliberate strategy – let’s make reading and analysing this so hard that no one will want to do it. In many spheres – such as consumer contracts and on-line ‘click-through’ agreements – it seems to work.

In situations where no one really needs to understand what terms apply, this approach is not important – except to the extent that it sets a norm for standards of design and drafting and impacts overall perceptions of contracts. Research suggests that most normal people (i.e. not lawyers or contract managers) see little value in contracts, except for the purpose of securing against worst-case scenarios and as support for counting revenue. The fact they are difficult to understand is not perceived as a particular problem.

Yet anyone who manages contracts knows this is wrong – and increasingly, that it costs a lot of money. While many high volume agreements may have limited relevance, contracts contain a range of rights and obligations that should be easy to understand and where compliance is essential. Contracts that fail to operate as efficient and effective tools for communication add to the likelihood of expensive mistakes and oversights.

So this brings me to the key concern, which is that there is so little focus or training on the sort of design and drafting skills needed to support contracts that are fit for purpose. Despite the infrequency of litigation, they continue to be driven by theoretical concerns based on historic interpretations of language. This means that they are intelligible to judges and lawyers and unintelligible to most others. Yet while there is evidence that their unintelligibility costs money and causes risks, there is no evidence (that I am aware of) that says judges are unwilling to accept improvements in design and terminology. Indeed, increasingly the sources of judgment are via alternative dispute resolution and there is no requirement that arbitrators or mediators are legally trained. Decisions are based more and more on understanding intent than on the old common law principle of precise wording.

It is time for all those who are involved with drafting contracts to stand back and question why we are doing things the way we are and what negative consequences flow from it. Our documents should be clear, easy to understand, simple to interpret and implement. Sustaining approaches that undermine these principles may be good for job protection, but should not be a source of pride.

 

7 Comments
  1. Say Amen. This manifesto needs to be seen by not just contract departments in corporations, but by their internal clients in purchasing and sales. Here’s the key point:

    “Contracts that fail to operate as efficient and effective tools for communication add to the likelihood of expensive mistakes and oversights.”

    A contract should memorialize the understandings between the parties and do it in a way that aids communication, not hinders it. Grammar, typography, print size, white space are all important.

    Simple things such as using Microsoft Word’s grammar checker and setting a standard for its “reading ease” and “years of education” scores will help. Rhode Island has required health insurance polices to score no higher than eighth grade on years of education. Yet a typical purchase contract I see , used internationally so there are language and culture issues to complicate communication, scores about 15 on a 0-100 reading ease and around 19 years of education.

    The Michigan State Bar association runs a monthly article on this subject: http://www.michbar.org/generalinfo/plainenglish/

    My background on this is that I run two day live seminars or 16 hour on-line seminars on international purchasing. There’s about an hour on legal issues, which is set after I cover cultural issues.

    ps, this post scores 45 on reading ease and 11.6 years of education. I should do better. There are 18.6 words per sentence and that’s a lot.

  2. Ed Hansen permalink

    Lawyers can’t make any more sense out of bad language than anyone else can. There may be some terms or art, but generally a badly drafted contract is a bad contract, and, aside from being confusing, introduces significant risk into the transaction. It always amazes me when a client talks about the lawyers taking a business concept and putting it in “legalese”. With very few exceptions, there is no such thing. Badly crafted, confusing, ungrammatical writing is not “legalese”. It’s just bad writing.

  3. B.R.Srikanth permalink

    I agree with the Post. Contracts are being drafted by lawyers whose language is extremely legal and long sentences. Sometimes, I lose track of what is being said by the end of the sentence.

    Lawyers should think how best to draft it in plain English without diluting the contents.

    Another suggestion is that there could be a two page summary of important terms and conditions

  4. Walter permalink

    Indeed this topic is timely,most organisations including the one I serve have ‘lifted’ and included certain clauses in the contracts’ leading to difficulty in implementation for example is it reasonable/legitimate in the context of international public organisation to include Liquidated Damages clause in the contract,knowing that it may be nearly impossible pre-estimate possible losses.Is liquidated damages the only contractual safeguard available to a public organization not involved in any revenue generating activities.

  5. Vinod Nakra, MRICS permalink

    Termination versus Liquidated Damages-an interesting discussion. But are we not simplifying? While under the Rights and Obligations the Employer/Owner has a right to levy Liquidated Damages due to delay by the Contractor (if time is of essence). He also enjoys the Right to Terminate in the event of a material breach.
    Both are to be seen in the context of the nature of default. In one case it is “material breach” in another a delay, which is not tantamount to material breach.
    What is the recourse open to the Rights and Obligations of the Other Party, if the Owner is responsible for a material breach? In the absence of any other provision, Termination though avoidable, cannot be wished away.

Trackbacks & Pingbacks

  1. Yes, Contracts Are a Mess. So What Are We Going to Do About It? « Adams on Contract Drafting
  2. Ken Adams: Contracts Are a Mess | Contract Business Intelligence

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