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A survey conducted by the International Association of Contract and Commercial Management (IACCM) shows that only 1 of 10 agreed that contracts are "easy to understand".  And only 17% were satisfied with the agreement process. These numbers are miserable.  Why is it so, what are the consequences, and what can we do about it?

Lack of user-friendliness in agreements causes problems. The two biggest are probably that agreements remain unread and are misunderstood. Because an agreement fundamentally is structured communication intended to reconcile the parties’ expectations, hard to understand agreements increase risk. Misunderstandings and diverging interpretations cause disappointed expectations. And before long, you may have a dispute.

Straight into the drawer?

Incomprehensible or overly complicated agreements often end up in a drawer. Thus, the parties may establish a practice that could redefine the agreement. If the parties’ practice deviates from the agreement over time, it may -- depending on any rules expressed in the contract or local legal doctrine -- eventually, be changed by such practice. That could lead to yet more misunderstandings, and even mean that regulation of such things as liability and division of responsibility may change or eventually cease. This uncertainty increases risk and should be a motivation for drafting contracts that are read and practiced.      

Why can’t lawyers keep it simple?

I can think of several reasons why lawyers’ complicate contracts, both by style (legalese), structure and scope:

  • Tradition- Indiscriminate use of existing templates and samples. While the focus is on increased user-friendliness in most other industries, little has happened in the legal field as old material is reused without improvement in usability.  
  • Target group blindness -The agreements are drafted by lawyers for lawyers, without considering the users.
  • Mindset -Agreements are created as legal weapons, rather than as financial and technical instruments. Focus is on reducing risk if things go wrong, rather than on preventing things from going wrong in the first place.
  • Influence -In my experience, common law agreements, particularly American ones, inspire lawyers in Europe and elsewhere. I once heard that in the old days, U.S. lawyers were paid per word drafted. Whether true or not, it is a fact that many U.S. agreements are extremely verbose. And they are often monolithic in their structure.
  • Prestige -Some lawyers may think complex agreements or wording makes the lawyer look clever. But, predominantly, the best lawyers I have encountered prefer to write clearly.
  • Failure to clarify expectations- Many lawyers fail to ask for the client's expectations for the agreement and its use. And many clients are not clear enough about what they want.

Perhaps the situation described above persists because many of us lawyers lack the confidence to change our style? The difference in the number of words from one agreement to another can be striking, as shown in the bar graph below:

The bar graph is an overview of standard form of agreements and agreed documents.  Notice the vast differences in word count. Documents cited in the graph are explained further below. 

  • Public SW:SSA-K; Norwegian standard form contract for the procurement of software by the public sector (but much used by also the private sector).
  • IT Operations (DND): Agreed document (terms) for IT operations by the Norwegian Computer Association, representing both buyers and sellers.
  • Outsourcing ICT: Outsourcing service agreement; standard form contract from ICT Norway, the leading ICT industry association of Norway.
  • Master Service Agreement, a typical sample of US-style MSA.
  • NF 1992 and 2000: Norwegian Fabrication contract, agreed on document for offshore and supply industry (equipment), published 1992 and 2000 respectively.
  • Orgalime 2000: European agreed documents (terms) for supply of technical equipment, much used across Europe prepared by the European Engineering Industries Association (EEIA) comprised of 40 trade federations representing companies in the mechanical, electrical, electronics and metalworking and metal articles industries of 23 European countries.
  • ECE, UN (1953): GENERAL CONDITIONS for the supply of Plant and Machinery for export, prepared under the auspices of the UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE, published 1953.
  • GPL 2.1 (1991): GNU General Public License v.2.1, published 1991, most used open source license agreement, e.g. for operating system Linux.
  • Construction 1994: NS 3430, agreed documents for the Norwegian construction industry, published 1994. NS stands for Norwegian Standard, an industry standardization organization
  • Construction 2004: NS 8405; agreed documents for the Norwegian construction industry, published 2004.

For example, is there any reason why a master service agreement for IT should be about twice as long as the already lengthy NF 2000, which regulates complex offshore deliveries worth billions?

This all points to the benefits of keeping language simple and brief. If you opt for simplicity, you will reap benefits such as:

  • the agreement will be used
  • the agreement will be practiced as drafted;
  • expectations will be aligned, reducing disappointment and its sibling, disputes;
  • show that you as a supplier care about your customers;
  • reduce transaction time and cost;  
  • simplify cooperation; and  
  • avoid misunderstandings

How to increase user-friendliness

The first step towards simpler and more understandable agreements could be to consider the Nordic agreement drafting tradition. Traditional Nordic agreement practice has been brief, quite plain in language and modular (i.e., divided into annexes). This has lowered transaction costs and enabled laymen to understand -- a necessity for smaller economies.

Apart from most common law agreements being lengthy, a common denominator in the agreements listed above seems to be that newer agreements are longer than older ones. Some of this may be attributed to more complex deliveries today than before. However, I believe the main reasons are those listed above, in particular, common law influence.

In short, I suggest we should be using:

  • a modular agreement structure: A quite short agreement document (one to four pages of text) for an overview, with attachments for delivery description, prices, progress, general conditions, etc.
  • fewer words: Sentences should contain no more than 25 words. The norm should be 15 to 20 words, with an average of perhaps 10 to 15 words. One message per sentence or use of bullet points. Common law agreements often contain sentences of more than 100 words, sometimes more than 200 or 300 words.
  • general principles: Many circumstances are hard to regulate, and most do not cause disputes.  By leaning on general contractual principles, whether in your own jurisdiction or in well-established frameworks, such at the UNIDROIT principles of international contracts, much drafting could be eliminated. Of course, key regulation, like damages, would need to be included in your contact, but more peripheral regulation could be left out. When a project crashes, it is normally not due to lack of enough fine print.

Of the agreements in the overview above, examples of Nordic contracting tradition are ORGALIME (equipment delivery, nearly identical to the Nordic NL/M, also an agreed document) and NS 3430 (construction contract).2, 3

What else can we improve?

  • Understand the delivery. The draftsman must really understand the delivery and its risk. Only then is it possible to know what needs regulating and what does not.
  • Write in the users’ language. Avoid legalese. Use language John Blow can understand. The company GE Aviation aimed at drafting language that a high school student could understand.4 Text written from scratch is optimal because it is harder to redraft old-school wording than creating new-school text, although this may often be too time-consuming.
  • Draft for your target groups. An agreement will often be used by different groups of people. Managers and technical experts (techies) should understand the regulation of delivery and delivery method. Business and finance people should understand price regulation. Most should understand the general conditions.
  • Structure for your target groups. Divide the agreement into various documents, based on relevance for each target group. Make the structure clear, e.g. by using a diagram. Diagrams may contain keywords describing the various documents, serving as a map to the agreement.  
  • Provide an overview. Greet the reader as a new guest. Show him or her around by briefly explaining what the agreement is about (‘the subject matter’ in legalese) and where its different elements can be found. Tables of contents may be useful.
  • Less is more. We have reason to believe that a short text is read more than a long text, also in absolute terms.5 For example, a reader may read all 2000 words of a short contract but may only read 1000 words of an 8000-word long agreement. Long texts are dispiriting to many readers. Perhaps Blaise Pascal put it best: “I would have written a shorter letter, but I did not have the time.” (1656).

Examples of easy to understand agreements

Employment agreement for illiterate

One of the best-known examples of radical agreement simplification is South African Robert de Rooy’s fruit harvesting labor agreement.6  The challenge was that the workers did not understand the employment agreements. Since many of them could not read, he developed a technique inspired by comic books.

De Rooy has won several awards for his impressive work. Later, he has developed similar comic book versions of other agreement types.

Apple makes an effort with its  iTunes termsAnother example of comic contracts and the benefit of contract simplification is from Apple, which made a comic strip version of its 20,669 words’ agreement for iTunes in 2017. Cartoonist Robert Sikoryak did the artwork above and below.  Apple has since created a version of the terms in 7000 words.

Robert Sikoryak/Apple

Shell wins an award for using images to eliminate wordy provisions

Like other large corporations, Shell traditionally had used complicated and wordy terms. In an effort to simplify, the company realized illustrations are easier to understand than long paragraphs of text. Shell’s drawing below exemplifies how the concept of transfer of risk at delivery can be illustrated more effectively in a drawing than in many words that not all may understand.

The IACCM awarded Shell an innovation award for strategic direction for its work in 2017.  

Use simple terms as a sales argument

I recently received an assignment from a start-up client of mine: “Create simple, user-friendly and balanced conditions. We want to reduce transaction time and cost, to gain customers.

Our client pointed to the terms of another software provider which it liked. The other provider’s terms totaled approximately 10,000 words (including a separate API license). After performing a critical review of must-have clauses and simplifying the language, we managed to draft a 2,317-word agreement, including an order form. This meant, of course, that some regulations were omitted. But the client concluded that the small increase in potential risk was compensated for by increased sales and reduced time spent on each customer. The client was thrilled.7 

An understandable call-off system

Another example of enhanced user-friendliness in a more complex agreement structure is the use of diagrams. I made the diagram below for a frame agreement for one of the largest IT companies in the Nordics.

I first created the diagram in connection with initial structuring of the agreement to avoid wasting time on unnecessary drafting. When the structure was finalized, the diagram was included as an appendix to the agreement, laying out the structure and some key concepts. During negotiations, it served as a map and established a pathway for completion.

The agreement document ended at 2,065 words, the call-off agreement document at just 430 words and the service level agreement (SLA) at 1,371 words. Keeping the call-off agreement and the SLA brief was especially important because they must be entered into several times, once for each country. The framework agreement document is, on the other hand, signed only once by the group head.  

Be user-friendly and flexible

Software development is challenging and a primary source of overruns in an IT project. Choosing the right development model may be crucial to a good result. One client wanted flexibility, simplicity, and a catchall format in a framework agreement designed to last. This was the result:

The agreement structure is an example of modular, targeted agreement drafting. The agreement texts are short and easy to understand.  

Do you need a manual to understand the agreement?

At international law conferences I have attended, the delegates have discussed the preparation of user manuals to help the users understand the contracts. In my opinion, such a manual is an admission of failure. And it implicates new risks. Why not write understandable agreements from the outset?

Is someone addressing the problem?

Although the authorities in some countries started to simplify public legal communication in the 1970s, little has happened in the private sector until quite recently. There are now several instigators for simplification:

  • IACCM and other organizations that work for better contract design and simplification
  • Legal Design Summit - a conference for the improvement of legal information design
  • The campaign for plain Englishthat began in the United Kingdom in the 1970s and accelerated with the Woolf reforms from 19998
  • In Norway, a plain language initiative was recently initiated by the Faculty of Law at the University of Oslo and the Norwegian Ministry of Local Government and Modernization, aimed at teaching law students to write more plainly

Is brief language possible under common law?

Lawyers in common law countries often explain their complex agreements with inadequate background law (general principles). Although certain provisions may need to be added to -- for example in U.S. or Indian agreements as opposed to, for instance, Continental European ones -- the examples from Apple, Shell, and GE Aviation show that radical simplification is possible also within the common law system. As Shawn Burton noted in connection with his simplification process for GE Aviation, it was surprisingly difficult for his team of lawyers to stop writing like traditional lawyers.

We have this one life – let us not spend it on senseless drafting.  

 

END NOTES

  1. The International Association of Contract and Commercial Management (IACCM), Future of contracting Survey, October 2016.
  1. Orgalime is the European Engineering Industries Association (EEIA) comprised of 40 trade federations representing companies in the mechanicalelectricalelectronics and metalworking and metal articles industries of 23 European countries.
  1. NS is the Norwegian Standard, an industry standardization organization
  1. The Case for Plain-Language Contracts, Shawn Burton
  1. Infographic: The Optimal Length for Every Social Media Update and More, Kevan Lee
  1. COMIC CONTRACTS Everyone can understand them, Robert de Rooy
  1. Crystallize terms of service weighing in at only 38% of Slack’s, Bård Farstad
  1. About Woolf reforms

 

ABOUT THE AUTHOR

Kristian Foss, Attorney-at-law, is a partner in Bull & Co Law firm, Oslo, Norway, former in-house counsel in EVRY (large Nordic IT supplier) and member of the Expert Committee for IT law at the Norwegian Centre for Continuing Legal Education. He has more than 20 years of experience with technology and contract law.

Topics: contract /commercial management, contracting excellence, organization & people, contract management, communication

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