Contract Law & Contract Management

The Contract Law Diaries: How much is enough?

4 Feb 2015, by Informa Australia

By Terry Reid*

Recently I was asked to review a ‘short-form’ contract for a client. The client was interested in purchasing a fairly standard software application for approximately $18 000. The contract arrived on my desk and to my dismay it was 68 pages long. I was reminded of the oft-quoted theologian and mathematician, Blaise Pascal “I have made this letter longer than usual, only because I did not have the time to make it shorter”. For many people contracts have become convoluted and exasperating. I could not see any logic behind a contract of 68 pages for a relatively minor purchase.

It contained (i) many irrelevant provisions which had no bearing on the purchase, and (ii) legalese and language which you would be more accustomed to hearing at a summer performance of Shakespeare’s Hamlet. Whoever had been responsible for creating this document had buried a relatively straightforward idea in a thicket of words which could only have been found in a detailed thesaurus!

For me contracts are the most important legal instrument for any business. They detail commercial and financial objectives and obligations. To be effective they must be prepared in a way which focuses on the end objective. The contract needs to balance this objective against the risk which may present itself during the lifetime of the transaction.

If we think of fundamental contract definitions – the contract in the first instance does not need to be in written form. It is perfectly legitimate to have a verbal contract to support any transaction. Indeed most of the contracts individuals will make in a lifetime will be verbal.

Somewhere between this rule and the desire to create a written trail covering a transaction many get buried in too many words – so how much is enough?Effectiveness vs Simplicity

This is the difficult question for many. I find many clients do not have the confidence to make a decision on what should and should not go into their written contract. They are often influenced by lawyers who are over zealous in protecting the clients interest but not receptive to making things simple.

Risk management and simplicity are not incongruous objectives. A good lawyer with an understanding of their clients needs and an even clearer desire to draft a straightforward contract will end in a good result.

It was recently reported how IBM had been able to transform dozens of pages of complex contracts for cloud services by reducing them to a simple 2-page document. The experience of IBM counsel was that the shorter contracts were far better for business. They involved far less time for clients and their lawyers and reduced the overall transaction costs.

The IBM experience need not be a unique example – it is possible for all contracts to be simplified and improve the overall business.

I hope this column can over the next few months make some suggestions on how to think about simplification and challenge the more traditional thinking and mind set about contracts. Never forget the words of Blaise Pascal who knew how much was enough.

* Terry has over 23 years’ experience as a barrister and solicitor and in the delivery of courses on a variety of legal topics, covering a wide range of audiences. Terry regularly provides courses for professional organisations, public and private sector clients, advising on topics such as contract law, legal compliance in the business sector and regulatory reform in financial markets.

Did you know you can formalise your skills in contract management through the Contract Management Professional Certification (CMP)? It addresses all knowledge areas required to become a proficient contracts manager. To learn more about the CMP, click here.

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