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Beyond anecdotal

July 1, 2014

This was the term used by a far-sighted participant at the recent IACCM Europe Conference. He was emphasizing the point that the influence of contract managers and lawyers depends increasingly on delivering facts, not mere opinions.

‘Beyond anecdotal’ means we must stop relying on fear tactics based on worst-case scenarios, and instead offer more objective advice anchored in research and analysis. This requires a robust view of probabilities, which can only come from holistic analysis of many contracts and market experiences, rather than selection of worst-case examples. It also demands that we become better at saying what will work, rather than focusing on problems.

Past reliance on worst-case scenarios and the things that might go wrong  has constrained the value of contract management. ‘Beyond anecdotal’ is a term we should all adopt to ensure our advice is balanced, relevant and respected. It also forces us to answer some tough questions – for example, how do we explain why Limits of Liability is top of our list of ‘most negotiated terms’ when the probability of litigation is 0.007% and the probability of a disagreement over scope is 38%?

  1. Given that so many regular contract terms are an anthology of mishap, I urge those responsible for using such contracts to ask periodically ‘why do we need this provision, when did we last invoke it, how do we justify it and is there a better way of addressing the risk it is supposed to deal with’. Whilst anecdotal spooking can be useful to get engagement in workshops, I fully agree that it should not be deployed in other contexts, unless one is prepared to sacrifice credibility! Picking up on the positive role which lawyers and contract managers need to play, it can be important to combat the reluctance (thanks to anecdotal folklore) which business managers have to taking a particular approach which worked badly previously but would be the best approach (assuming the lessons learnt are heeded).

  2. Eugene P. Grace permalink

    Many contracts are written to provide protection even for highly improbable circumstances. I describe this phenomenon as “wearing a space suit on earth.” The space suit will protect you from many dangers on earth. However, it will severely slow down your performance capabilities and may make you a good target for mischief or worse. A well designed limitation of liability clause will be based on reasonable concerns with a reasonable cushion for unexpected circumstances and demands a strong knowledge of the underlying business facts. Overly onerous contractual language will slow down the closing of orders and reduce business revenue. A thorough examination of risk should be undertaken with a reasonable margin for error. The contract drafter should be able to articulate reasons underlying the company’s exercise of caution, but should avoid wearing a space suit on earth.

  3. A refreshing view which we should always share. However, what would be a more realistic statistic to provide other than the risk of litigation arising under Limits of Liability would be a stat showing the number and value of “commercial” settlements that are agreed under the general umbrella of claims under LoL clauses.

    • Julian
      You are certainly right to raise the point regarding ‘out of court’ settlements. These far exceed cases that are litigated and they are on the increase. My point is not only about liability clauses. If we recognize that litigation is unlikely, it frees us to consider a range of new approaches. For example, we could start designing contracts for users rather than for court rooms. We could move to ADR as a standard approach and cut the complexity and lead times associated with issues like choice of law and international legal variations in international contracts. We could shift our focus to scaled escalation and resolution procedures etc. Ultimately, my point is that we should be researching and tackling the source of disagreements and failures, with a view to reducing their frequency, rather than spending so much of our time protecting against their consequences.

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