The Adams/Cummins Debate: Sweep away traditional contracting

The Adams/Cummins Debate: Tim Says “Yes”

Ken Adams is an authority on contract drafting. Over the years I’ve discussed with Ken the future of contracting. After a recent exchange of emails, we decided to try a more formal approach. We agreed to address on our respective blogs the following proposition: We want new technologies to sweep away traditional contracting, so we can have faster, more efficient, and more cost-effective contracting. In this post on his blog, Ken gives a hearty “No” to this proposition; below, I give an equally hearty “Yes”! We invite you to chime in, whether on Ken’s blog, my blog, LinkedIn, or Twitter.

I start my case for fundamental change with several observations about contracts and contracting, past and present:

1. The underlying purpose of a contract goes back several millennia. It is to memorialize and give structure to an agreement between two or more parties, under which those parties anticipate a mutual economic benefit.
2. The last 35 years has seen a massive upsurge in the volume and complexity of contracts – in part doubtless linked to an exponential growth in the number of lawyers (for example, in the United States a 600% increase between 1980 and 2016; in the UK, around 300% in the same period), but also due to the breakdown of ‘the integrated enterprise’ and the explosion in regulation and international trade.
3. Businesses are in most cases not good at creating or managing contracts. They are difficult to understand; they are often assembled by a disparate group of stakeholders with highly variable skill; and, in their current form, they have proven almost impossible to automate. The result is a massive level of under-performance and value erosion.
4. I believe that contracts – and the process through which they are formed and executed – are of fundamental social and economic importance. They bring definition and discipline to trading relationships, which themselves lie at the heart of human wealth and welfare.

It is in fact this final point that convinces me of the need for a radical shift of thinking and approach. As others before me have observed, it is time to move from the ‘artisanal’ to the ‘industrial’ – and that demands the introduction of technology. Current processes are too slow, too expensive and the results they generate are too unpredictable. Contracts are multi-functional, multi-purpose instruments, too important and too complicated to be left to manual production and management processes or the whims of any particular stakeholder group.

Where Ken Adams and I would violently agree is that there is a desperate need for increased quality, driven by the adoption of norms and standards. In this context, a ‘style guide’ or ‘common programming language’ is invaluable. But in my view we no longer need, nor can we afford, armies of artisans, individually crafting custom agreements or templates. My world largely eliminates those artisans and replaces them with automated processes. Human intelligence will be deployed in areas requiring creativity or nuanced judgment – areas of innovation, rather than regurgitation.

Where does this change come from?

Quite simply, we are entering a digital age where there is convergence in media and where  technologies such as artificial intelligence, natural language processing, advanced analytics and robotic process automation are transforming what we do, where and how we do it. In designing these new automated processes, historic methods are exposed for what they are – risky, costly and inefficient. The more they are standardized, the more they can be automated – and automation also means improved risk management through monitoring, reporting and controls. In other words, we are moving to an era of dynamic insight into contract performance and, to achieve that, we need to drive front-end efficiency through more consistent terminology and structure.

Thirty years ago, it was argued that businesses could not possibly standardize terms and conditions across jurisdictions. That was wrong. They did. Similarly, we know that standards can be developed across industries; there are multiple examples. But the push-back on those standards has rightly been that they are not adaptive to change or to specific circumstances, that they introduce a level of rigidity. That led to multiple individuals making custom amendments and ‘tailoring’ contracts, whether needed or not. Indeed, corporations that believed they were operating with a small set of standard templates regularly discover that they have, quite literally, thousands of variants.

Networked technology combined with advanced analytics undermines the objection to ‘rigidity’ and eliminates the excuse for endless customization. The new wave of standards will draw from cloud-based clause libraries with established fall-backs, supported by front-end intelligent systems – such as ‘bots’ – that act as assemblers of appropriate term combinations. Those ‘bots’ are the product of the lawyers and the contracts professionals who used to be reviewers, approvers and drafters of term variants.

‘Style’ will increasingly be universal, since battles over words are an expensive and largely redundant use of time and cause of delay. Already we are working with legal teams who are under pressure to develop ‘no touch contracting’ – that is, contract formation suited to the frictionless digital age and post-award management conducted through self-executing agreements in blockchain. Others are using machines to analyze and slash the cost of commercial operations by identifying downstream inefficiencies created by contract complexity – reducing error rates, causes of disagreement, claims.

At SwissRe, automated systems are undertaking analysis of customer terms and conditions, identifying variations from accepted norms and suggesting possible mitigation. Those same systems are helping corporations understand and manage their contract risk portfolio, generating on-demand management reports that previously required armies of lawyers or contracts specialists. At BT, intelligent software is analyzing signed agreements to extract and disseminate contract obligations and monitor performance.

These are among the many examples of organizations streamlining the contracting process – stripping out cost, speeding execution and reducing error rates. The momentum is unstoppable – and the benefits are self-evident. Therewith, I rest my case.