Daily Archives: October 6, 2017

Dear Big Co. Here’s Why Your Contracts Suck …

… and why no one wants to sign them, yet alone even read them!

And since all contracts should be written in plain English (or, if between two parties whose native language is Elbonian, in plain Elbonian, for e.g.), at a senior high school reading comprehension level, we are going to write this post in plain English too.

They are too long. No one wants to read 100 pages of your lawyer’s hyperbole rhetoric that is, in common terms, the literary equivalent of a steaming pile of cow dung.

You read that right. No one wants to read 100 pages of your lawyer’s hyperbole rhetoric that is, in common terms, the literary equivalent of a steaming pile of cow dung.

Furthermore, at least 90 pages of this is guaranteed to be completely unnecessary (and you should feel ashamed at the money you wasted paying your high powered corporate lawyer to write it in the first place).

Let’s go back to the purpose of a contract.

To clearly specify

  • the obligations between two parties,
  • the benefits to both parties from meeting their respective obligations, and
  • the recourse available to one party if the party defaults on the obligations of the contract.

In plain English, even English written by the bard himself, how many pages does that take? Even in the most sophisticated of transactions with a list of obligations by both parties, probably not more than a few pages. (Now, if you are contracting for the construction of an office building, you might need hundreds of pages of addendums on architectural, structural, municipal, etc. requirements, but that’s not the heart of the contract. This can be clearly captured in a sentence that states party X agrees to build the structure required by party Y, as clearly detailed in appendices A through T that detail obligations 1 through 20 respectively, do so for a fixed fee of Y M, and delivery by due date, with penalties accruing at the rate of Z00 K per month. Simple, eh?)

After you’ve specified the mutual obligations, there are only three other requirements for a contract:

  1. Requirements of your Insurance Company
    If your insurance requires limitations of liability, certifications, etc. to explicitly be included for it to remain in effect, you include these requirements, and only these requirements, and only to the extent required.
  2. Requirements of the jurisdiction in which you are operating your business
    If you are doing business in the US, and you are buying technology that could possibly fall under ITAR (for example) if certain requirements are not adhered to, then it must be contractually clear that the products will be designed to adhere to those requirements. (Encryption will not exceed a certain level, etc.) Furthermore, if there are regulations against human trafficking in the supply chain, taking measures to insure denied parties do not receive financial payments, etc. that must be adhered to, then these are included as well.
  3. Requirements of any jurisdictions in which you are subject to as part of the transaction
    If the jurisdiction of the other party can imposed requirements on you, or if you plan to sell the products or services bought in a third jurisdiction, you need to include any requirements imposed by those jurisdictions.

However, this does not mean you include pages and pages of detailed requirements and regulations, that are well defined in the appropriate laws and statutes and regulations you are bound to, merely that you reference those regulations and require the other party to adhere to them. This usually requires only a few sentences per regulation, max. Not paragraphs and definitely NOT pages.

That’s it. Nothing else. And I cannot emphasize enough that you don’t include something else just because your lawyer decides there is a minute 1 in 1,000,000 risk that something could go wrong and someone with a better funded legal team could possibly find an innovative way to wiggle out of a contract that didn’t cover the obscure case of a worker tripping and skimming his knee because he stepped on a snail on the way to your worksite. Over funded legal teams under the control of people with more money than brains can always come up with harebrained arguments and ridiculous legal challenges — but how often does it really happen? Especially between two parties who were open and honest in negotiations and go into the contract fully intending to fulfill it? And is it really worth spending tens of thousands (or more) of legal time on an average contract which is usually a small fraction of organizational spend? (If an organization has 10,000 contracts and it’s revenue is less than 10 Billion, the average contract value would appear to be one million, but give that there will be a few large contracts with key suppliers that leverage volume, you’ll have a few dozen contracts in the tens or hundreds of millions and an “average” contract in the tens or hundreds of thousands.)

Remember, your lawyer’s job isn’t to tell you what to do. Your lawyer’s job is to listen to what you want to do, advise you of the risks, and then do whatever you tell him to do, which definitely includes writing short, easy to understand, contracts that people will actually sign. At the end of the day, you need to do your business. Contracts should enable that, not get in the way.