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Can contracts really change?

March 2, 2016

Impenetrable, incomprehensible, confusing and downright boring. These are a few of the words commonly associated with contracts. Whether it is the way they are designed, or the way they are worded, the overwhelming majority of contracts merit those descriptions. Indeed, in the case of many consumer agreements (especially those on-line), one can only believe the approach is a deliberate turn-off. Large companies would prefer customers not to realize just how unreasonable and unbalanced their terms of business really are.

Despite massive progress in other areas of communication – for example, company reports, marketing materials, web sites, official notices etc. – contracts have largely resisted significant change. In some instances they have moved to ‘plain English’ and there have been efforts to make them shorter (which does not necessarily make them clearer or easier to understand). But overall, IACCM surveys tell us that more than 90% of business people find contracts ‘hard or impossible’ to understand. Which may, of course, be good news to their authors, since it means more work providing interpretations of what they wrote – or in some cases, interpretations of what they think someone else was thinking when they wrote it.

Ultimately, none of this makes any sense. Contracts should provide an accurate record of an agreed transaction or relationship. In our increasingly volatile and virtual world, it should also provide a framework for underlying ‘business operations’ – who does what for whom in what circumstances and, in many cases, how this gets done. Good contracts are those that seek to deliver success; dealing with failure should be the exception. Today’s contracts often make failure more likely.

But however illogical the current approach, can it really change? Is there enough interest in making those changes? Increasingly the signs are yes. Led by a growing body of lawyers who are frustrated with current role and image, supported by an increasing number of law schools which want to produce graduates suited to the 21st century, aided by technologists who are working on artificial intelligence and blockchain, urged on by business executives and project managers who need contracts to become viable business tools – the momentum is building fast.

At IACCM, we re seeing this in a range of initiatives. For example, a growing number of in-house legal groups are coming together to explore the possibility of developing agreed ‘industry standards’ which would set a more consistent framework between suppliers and customers, facilitating increased clarity of those standard terms and reducing the amount of repetitive negotiation and customization. This is further developed by the legal groups approaching us for ‘contract design assessments’ – a specific effort to design contracts so they can be easily understood by counter-parties and users. Experience shows how this dramatically reduces cycle times, leads to increased compliance – and confers competitive advantage. It tells the world that they are forward-thinking organizations which actually care about open, honest communication and balance in their trading relationships. Then there are the various ‘Hackathons’, where top corporations and law schools engage in fundamental questioning of the thinking that underlies today’s contracting processes and its outputs ….

Beyond these practical steps, we have the much grander vision in places like MIT and Stanford, where fundamental thinking is going on about contracts in a digital age.  An example is the Center for Collaborative Law ‘Common Accord’ event in Boston in May. There is a belief – currently beyond my understanding – that we can quite rapidly move to codified content and that contracts become standardized artefacts which increase security and also enhance them as ‘tradable assets’.

How quickly this grand vision occurs, I have no idea. But I do know the momentum for change is now here and that the practical examples of it are increasingly visible. Of course there will be those who resist, just as many in the clergy resisted the spread of printed books in the 15th century. Anything that demystifies activity and makes it accessible and understandable is a threat to those who own ‘the mystery’. The forces of history are firmly on the side of those who want simplification and self-help.

One Comment
  1. This is a great manifesto. Not quite at the level of Martin Luther’s 47 theses or the Declaration of Independence, but a clear statement of a major problem and a call to action to fix it.

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