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Still broken. Why contracts don’t work, and the big shift required to fix them.

By Denis Potemkin,

Trade is the foundation of civilization, and contracts are the lifeblood of trade. Over the centuries and especially in the last three decades, trade has shifted from goods and services, to product experience (think Apple), to relationships (think Amazon). Businesses that are good at relationships will win. Those that are not, will die.


For businesses wanting to build relationships, contracts are the “last mile”. And it’s a dismal last mile. Despite all the technology, process know-how and money thrown at the problem in recent years, contracting continues to be frustrating, as demonstrated time and again by surveys of legal and business leaders. Take a look at these numbers:

It’s 2021 and that does not paint a healthy picture. There is a lot of change afoot, driven by fantastic change-makers. But based on my own experience as a lawyer and consultant (and what I hear from others), 95-99% of contracts are still done “in the old way” with little evidence of real change in the day-to-day B2B world.


So the whole contract journey remains very dysfunctional. Patching it up through process and automation addresses only some of the symptoms and fails to address the real issue: contracting has not yet made the shift to the relationship economy.


Those are the symptoms. What is the diagnosis? I believe it can be distilled into 3 key causes and 3 corresponding cures.


1. The wrong tool for the job

Contracts, and the associated processes and tools, are made for lawyers first, business second. Rather than creating business outcomes, they create confusion and churn.

There is a lot to unpack here. My short diagnosis: complexity, supplier-centricity and the wrong tech. The typical contract as an instrument is not designed to actively help the business with the business; instead it’s designed to manage risk. A lot of counterproductive complexity is driven by this excessive focus on risk. As Alex Hamilton of RadiantLaw puts it in his excellent new book Sign Here, the “normal” is to expect and create car crashes. It is supplier-centric: by lawyers for lawyers.


Technology can have a compounding effect. The dominant tools are Word+email which I believe are not well suited for dynamic processes and human relationships. These tools reinforce the supplier-centric paradigm. Add-ons and integrations enhance but don’t transform. Software that replicates the process adds efficiency but the fundamentals don’t change. An automated horse is still a horse.

So the traditional contract is a poor instrument for forging relationships and building trust. This means that the people, processes and software involved in getting that contract signed and managed have to work that much harder - resulting in the bottlenecks, complexity and frustrations we see every day.


2. It’s all just words

Contracts are no good at telling the story. This means they do not help to create clarity (in fact they are counterproductive to it). Yet clarity is a key component of a successful relationship. The apotheosis of this is that boilerplate wording that tells you to ignore the contract’s headings.

The business world communicates with headings, pictures, stories and outcomes. Lawyers communicate with words and risk. Even that, they do badly: long-winded, pompous, full of archaisms and repetitive word strings. The justification goes something like “the law is complex, we need to protect our client, so this is necessary”. But Ken Adams and others have been demonstrating for some time now that contracts are full of unclear, inconsistent and repetitive language which actually adds to, rather than reduces, uncertainty and therefore risk.


There is fantastic work being done in legal design and visual contracts, and it’s starting to make inroads from B2C to B2B. But it’s still an artisanal process and not widely used. To paraphrase Aldoux Huxley, that future is here but it’s not yet distributed.


3. Negotiations are stupid Most negotiations are done by firing off a one-sided template to the other side and hoping it sticks. Then exchanging mark-ups (tracked changes via email) in iterative adversarial cycles. All this happens right at the end of the relationship-building journey. This process encourages an excessive focus on minutiae. It obscures the big picture. It is adversarial. It destroys trust.



Contracting technology takes the same process and automates it. The result may be faster, but automating a bad process gives you – not surprisingly – a bad automated process. It may work well enough in some contexts but I wonder how much of that is attributable to Salesforce?


There are plenty of accessible collaboration tools and more sophisticated negotiation platforms. Anecdotally, the negotiation functionality of automation platforms are not widely used - so it’s a question of habits, not technology. The day-to-day reality for most businesses is still very backward. We can do better.


What is the cure?

I believe that solving the problem needs a different approach to how contracts - and the entire contract journey - look and work.


As Richard Susskind pointed out, clients don’t want lawyers, they want outcomes. Contracts in their current form are a product of process-centric and supplier-driven thinking. Fixing it requires a paradigm shift towards outcomes, end-users and more collaborative ways of working.


1. Power to the business

Lawyers need to give users the right tools to get their jobs done. This means giving them documents, workflows and technology that they can actually understand and work with.


This requires writing contracts differently (making them clearer), approaching risk differently (rebalancing in favour of business outcomes), and communicating differently (think B2B, not L2L). Contract templates should be treated as functional self-serve tools - not templates to which one bolts on self-serve as an afterthought. Contract systems should be active instruments for driving and tracking outcomes, not historical records of risk allocation.


2. Beyond words

A modern contract must be able to present information in ways which are helpful to the user and creates trust. Clarity and trust result in direct business outcomes, like reducing deal cycle times.


Contracts should say all the right things about your company, communicate clearly and transparently, be on-brand and present information in a way that gets people on the same page quickly. A wall of text that starts with definitions and disclaimers is not going to achieve that. A business-first information architecture, agreement maps, design patterns, visuals and plain language will. Contracts should be able to present information in ways that accommodate diverse preferences and aptitudes, and provide an interface both for the business looking at the big picture and for the contract professionals working with the detail.


3. Don’t shout, collaborate

Negotiations need to be radically different. Less asynchronous ping-pong, more real time discussion. Less positioning, more getting on the same page early. Less red-lining, more aligning on the principles.


There is encouraging movement here. I was really intrigued by Radius Law’s recently launched Radius Collaborate, a negotiation support model where one lawyer acts as a mediator for both parties. World Commerce and Contracting (WCC) and the oneNDA initiative, each in their own way, are working to build broad-based industry alignment to create standards and reduce senseless negotiations on minutiae. At Majoto, we give users tools for agreeing on the big picture first, and structured ways of working together in real time with colleagues and counterparties.


This is not just about mind-set or method. Contracts and contracting tools need to support and encourage more collaborative practices - actively.


How do you actually do that?

Let’s think about some real-world symptoms, causes and cures, building on the broad concepts outlined above. The symptoms are commonplace. The cures are all achievable with and without technology - it’s what I help businesses do every day. Of course these are simplified examples; a good methodology must be applied to correctly identify the problems and build the right solutions.

Technology is an enabler, not a cure. Of course the right tech stack (and the right way of deploying it) helps a lot - that’s a big subject in its own right. The best technology will increasingly aim to solve for business outcomes and relationships. For now, there are tried and tested real-world solutions that can work without tech, and make the tech work better.


Conclusion: It’s relationships, stupid.

Contract pain is an acute problem that people experience every day, resulting in a great deal of frustration and real economic loss.


Contracts are about relationships (a human problem) yet are usually treated as a problem of process, risk and data. This results in dull documents that nobody understands, that are overly focussed on risk, which fail to track the changing relationship between the parties, and which are built and negotiated in an uncollaborative way around minutiae instead of the big picture. The contract remains a static record of a lawyer’s view of the relationship.


This is no longer good enough in a world where competitors are global and customers are fickle, and where technology and distance challenge our traditional business and social models. Relationships are more important than ever, yet harder than ever.


Lawyers are working harder than ever, but often they’re fighting with the wrong mindset and inadequate tools. Helping the business to build relationships is about bringing people together, getting them on the same page, creating clarity and getting to “yes” fast. Both the low-hanging fruit and the long-term answer, is a better contract experience. A mind shift in how contracts look and work can give us the power to achieve this, starting now.

 

About the Author

Denis is a lawyer, legal designer/engineer and legal tech entrepreneur. Denis consults businesses on contract process improvement, is Head of Innovation at London-based ALSP LexSolutions and founder of legal tech startup Majoto (majoto.io) where he is building a contract automation solution based on the models described in this article.


Denis is passionate about design and behavioural change as a means to make legal processes and technology not only productive, but also better at creating positive relationships and wellbeing. He writes about better contracts on his blog at potemkin.legal.


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