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Why simplify your contracts?

January 5, 2018

This month’s Harvard Business Review features an article, ‘The Case for Plain-Language Contracts’, by Shawn Burton, General Counsel at GE Aviation. In his introduction, Shawn observes: “The contracts used in business today are long, poorly structured and full of unnecessary and incomprehensible language”. He rightly makes the point that contracts are business documents and should therefore be understandable to the audience for which they are relevant.

This point seems glaringly obvious and the article comments that the push for plain-language contracting goes back many years. One likely reason that progress has been so slow is highlighted in a recent opinion piece published by Forbes, in which Mark Cohen – a Fellow at Northwestern University School of Law – challenges the fact that law operates ‘as a guild, rather than a competitive market’. The system of licensing that this involves means that lawyers ‘have fostered a ‘bespoke myth’ that maintained all legal matters were unique, inherently complex and worthy of premium rates’. Using archaic and complicated language, decipherable only by an expert, is of course a key element of that myth.

Ken Adams, guru of contract style, has unsurprisingly piled in on this topic and makes some justifiable comments about the simplification undertaken at GE Aviation. He suggests some worthy improvements to the wording of the agreement. However, he also bows to traditional thinking when he suggests that because contracts deal with complex matters, they must therefore themselves be complex.

Why does this matter?

Contracts today are pervasive. For a variety of reasons, both the volume and size of contracts have grown dramatically over the last 30 years and this has been accompanied by greater complexity – for example, the increasingly frequent need to to operate across languages, legal systems, cultures, as well as dealing with complicated, long term relationships on challenging and innovative projects – and in an environment of rapid change, heightened uncertainty and growing regulation. However, it is worth noting that the vast majority of those factors are not in themselves anything to do with ‘law’. Contracts – and the process by which they are developed and agreed – shoud be assisting in generating clarity and shared understanding for all those who they affect, not adding to the mystery or uncertainty and being decipherable only by one specific interest group.

Business people need practical business instruments that support successful business outcomes. As Paul Lippe, founder of LegalOnRamp, commented to me just this week: “Contracts today are a roadmap for dispute resolution”. This renders them inadequate – and often irrelevant – when it comes to providing a useful or structured framework for overall governance and performance management. Quite simply, they often fail to assist businesses in dealing with the real business risks that arise during the contract lifecycle. Ironically, this lack of clarity regularly means they are not even particularly useful in dealing with disputes.

It is rarely practical to anticipate every incident or uncertainty that might affect contract performance, but it is entirely practical to anticipate that such incidents are likely to occur. It is in this context that well-designed  contracts provide clarity:

  • for those things where there is certainty, they must offer unambiguous instruction;
  • for those things that deal with uncertainty, they must offer clear guidance on how it will be handled.

The obligation for anyone drafting an agreement – indeed, their test of success – should be that the users of that agreement can understand it.

Complexity is no longer an excuse

Throughout the centuries, complicated ideas or tasks have resulted in the formation of specialist groups or associations. The intent is laudable. It has generally been to raise standards and encourage informed debate and improvement (at least within that specialist group or community). But over time, such groups have always become resistant to change and sought to maintain mystique – the use of Latin within the Catholic church was a case in point, or the Luddites smashing machines was another.

When it comes to contracts, simplified langauge is no longer enough. The world has moved on. Traditional written documents are for many people a thing of the past; they operate in a digital age where communication is through emojis, text-talk, graphics and videos. In many cases, these methods generate far greater understanding and consequently far greater compliance. To take an example, engineering drawings are complex. Just like contracts, they require experts for their interpretation. And that is why engineering drawings in their traditional form are becoming a thing of the past. Whether it is for kitchen re-design or for smart city construction,  virtual reality programming has taken these innately complex concepts and made them fully understandable to the wider public.

Specialists and professionals remain important to human progress, but in order to survive and stay relevant they must focus on how they make their expertise accessible and affordable. In the case of engineers, they may still develop drawings, but these operate as templates for the virtual reality program. Either they expand their skills (to include programming) or they partner with programming experts.

A key measure of future value must surely be that we enable the success of others by making complex things simple for them to understand and implement. Contracts will not be an exception. Already, we are seeing the emergence of more standard terminology and the development of machine-based analytics (the end of the bespoke). We are also seeing growing use of graphics and video – methods through which contracts serve a broader business and social purpose. These developments are exciting to observe – and indeed, many lawyers share that excitement and are operating at the forefront of those changes.

 

 

 

6 Comments
  1. An interesting editorial and one that I agree with ( sort of ) and support ( to a degree ).

    One must keep in mind that regardless of whether the contract uses simple language or complex language or takes the form of a traditional contract or is written on a paper napkin with a smiley face in the corner, it will still be governed by and interpreted and enforced under the laws of the state in which the contract will be governed…,whether that’s common law, civil law or UCC law.

    Therefore, a simple worded contract can in itself create even more risk, more ambiguity, more legal costs and greater awards for damages to the parties involved.

    This is especially true within the U.S. where the culture is to sue first, ask questions later and let the courts decide.

    There are many ways to make sure the business folks understand the provisions written within a contract without putting your business / company at risk with simple language that if interpreted by the courts could be very very costly to your organization / company.

    Roy Tarnowski
    Founder & CEO
    Brix Consulting Inc.

  2. Roy, this would perhaps be true if a) anyone could actually understand many of these contracts (including the lawyers who prepare them) and b) there actually was a significant rate of litigation.

    But actually, neither hypothesis stands up to scrutiny. These are exactly the fear-mongering arguments for maintaining today’s complsxity, regardless of its cost in poor relationships and failed deals.

    I’d be very interested to know of situations where simplified wording has created more risk. I think perhaps you are assuming simplification means laxity or incompleteness – neithe rof which is true. Simple does not mean incomplete or lazy; in fact, it often means the opposite. It is actually the continued use of archaic terminology that is lazy – and quite clearly drives greater business risk because of poor understanding.

  3. Chuck Barry permalink

    Tim,

    I agree that contracts:

    1. For products/services of significant importance to business success (operationally or strategically) should be, first and foremost, understandable to the users of such contracts.
    2. Should provide a structured, useful (easy to comprehend) “framework for
    overall governance and performance management.” I would add, akin to a
    “blueprint” with a “set of instructions…the plan and specifications for a business
    relationship. The private law of the transaction.” (P. Siviglia, “Writing Contracts –
    A Distinct Discipline”, 1996, p.1)
    3. “Assist businesses in dealing with the real business risks that arise during the contract cycle.”
    4. It is “rarely practical to anticipate every incident or uncertainty that might affect contract performance, but it is entirely practical to anticipate that such incidents are likely to occur.”

    Here lies the crux of this ages old problem. It takes careful, business outcome-focused, disciplined thinking and processes – and time – to develop and tailor such contracts. In this “instant message” world most of us operate in these things are a challenge to do, but well worth it and fulfilling for all parties when done well.

    As for my day-to-day impact in this area, I love it when I get a client’s “statement of work” for engineered products or any other complicated product or service or design and get a chance to “improve” it by reducing the ambiguity and increasing the clarity or certainty (Tim refers to) of expectations, and giving clear, concise “voice” to the expressed and unexpressed objectives and
    desired outcomes of the parties.

    Great, insightful article, Tim!

    Chuck Barry

  4. Ben Crossley permalink

    Tim. Excellent article!. Arguments make perfect sense, and many support them.

    Question is, why don’t organisations implement this good sense. Working on construction contracts we always come up against the issue stated in Cobb’s well known paradox: “We know why projects fail; we know how to prevent their failure—so why do they still fail?”

    I believe its business culture. Executive management short-term outlook and protective self-interest. Means they buy into the lawyers myth of complexity, and offload responsibility to legal “experts” .

    Articles like this are a great contribution to changing that business culture one step at a time

Trackbacks & Pingbacks

  1. What Kind of Change Should We Seek in Contracts? - Adams on Contract Drafting
  2. What Kind of Change Should We Seek in Contracts? – Centre for Law and Development Studies

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