Top 5 Tips to Simplify Your Contracts
As part of our HiveGC+ offering, we have the opportunity to see a huge range of business-as-usual and complex contracts used by our clients. While the subject matter varies, the need for a simple, efficient and effective contract remains consistent. Here are our top 5 tips for simplifying your contracts.
Tip No. 1: Don’t Sweat the Small Stuff
As lawyers we want to protect against all possible risks. While this is great if you have a counterparty who is willing to agree to all of these things, this is not generally the case. Instead, you are likely to be stuck in a negotiation pit, arguing over points that may not actually be relevant to the subject matter of your agreement.
To avoid this, start your contract process by identifying the key risks of your arrangement and address these as a priority. A counterparty is much more likely to accept items which you can show are reasonable to protect you from the actual risks of the arrangement – for example an extensive data protection clause may be warranted where they will be holding your data and this is the key risk of the agreement.
Likewise, identify those points which may be part of your template agreement, but are unlikely to be relevant or material in the present circumstances. If you’re unlikely to be sharing confidential information, do you need a two-page confidentiality clause, or can this be addressed more simply?
It is important that your contract protects you from key risks, however it is equally important to keep in mind why you are negotiating it in the first place.
Tip No. 2: Good bones
To be used successfully, and most importantly, to empower commercial teams to move contracts forward themselves, good structure is essential.
Mechanisms that we have seen work particularly well include:
- Including all key terms (eg parties, price, payment) on page one of the document so parties can see these upfront;
- Include the ‘general terms’ which will apply to all agreements in a separate section, which the teams are encouraged not to vary;
- Include variable terms in the schedules to save you from redrafting the whole document between parties (eg if a supply agreement is to apply to for a range of goods, and each has slightly different terms which apply to them, these can be set out as special conditions within the schedule); and
- Include options or drafting notes so that non-legal team members can identify the most appropriate terms for their agreement.
Tip No. 3: Make it user friendly
Contracts need to be understood by their users, and not just the lawyers who prepare them. There has been talk of plain English for a long (long) time, yet still we commonly get asked by commercial teams what clauses in contracts are talking about, because they are working with a contract that makes no sense to them. Keep it simple and try and avoid legal jargon where possible.
Secondly, understand who your audience is, and how they want to receive the information. For example, if the contract contains a complex termination payment calculation, is there another way you can frame this so it will be useful when it’s actually going to be relevant eg a worked example? Make sure you design the content with these needs in mind.
Tip No. 4: Make it visual
While words are the traditional way contracts are written, they are not always the most effective. Further, they do not take into account that different users of the contract will take in information in different ways. There is a reason that no smoking or no diving signs are shown in pictorial format. Consider whether you can use diagrams or visual references to make your point.
Tip No. 5: Automate
While we have touched on the importance of templates, another option which is becoming increasingly popular is automation. When set up well, this can empower the teams who are negotiating the transactions to complete the contracts themselves by directing them to the key items to be included.
Chatbots can also be used to assist with building the contract, as well as for the surrounding processes. After seeing the administrative burden often experienced by our clients in utilising a contracts approvals process, we recently built a chatbot using Josef to automate this to provide a quick, simple and easy to use option to have the contracts approved internally.
In addition, and possibly more importantly, automated processes can be set up to enable the capturing of data – giving you the opportunity to reflect on the key work areas which are coming from the business, the volume of particular types of work, and who is doing it.
This article was written by Adrienne Trumbull from Hive Legal and this content featured in Episode 1 in the ‘5 in 5’ Podcast powered by Legally Yours.
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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in, or to any constituent part of Legally Yours Pty Ltd accepts or assumes responsibility, or has any liability, to any person in respect of this article.