Your agreements are only as good as their drafting. Contracting errors and mediocre practices are far too common among lawyers and other contracting professionals. This article explores basic best practices in contracting (and the negotiations surrounding those contracts) and pitfalls to avoid.
Dos
Do the Basics
Ensure you’re doing the minimum of good drafting. One of the basic rules of contract drafting is to be internally consistent. For example:
- Make sure formatting is homogeneous. For example, it is difficult to read an agreement with mismatched margins. Plus, it looks unprofessional and conveys the wrong message to the other side.
- Be sure your fonts match.
- Use consistent Appendix titles, whether you call them schedules, exhibits, or something else.
- Be sure your definitions match. How often do you review a contract in which the vendor is defined as “supplier,” but called “company” or another term within the agreement itself? Definition use should remain consistent throughout the contract.
Additionally, formalize the agreement appropriately by proofreading the language you drafted, accepting (or rejecting) redlines, and deleting all comments before the parties sign.
Do make technology work for you
Use technology to your advantage, because it can save you time and energy needed to focus on work that requires human brainpower, not artificial intelligence. For example:
- If you need to compare a previous draft of an agreement to a current draft, use Word’s compare function.1
- Run spell-check before finalizing to make sure you didn’t miss any obvious typos.
- Use the “Find” feature to search for language or a clause you’re looking for.2
Let the “robots” do the basic work. Technology changes all the time, so I always say, “It takes a village to raise an iPhone” because I learn so much about my phone from others and I teach them what I know. Similarly, in your job, learn what tech can do for you from others and teach them what you know.
Do understand your agreement as a whole
It is vitally important to understand the entirety of your agreement. It is not just a bunch of sections thrown together. Those sections affect and inform each other. For example:
- Your definitions only matter based on how they are used, so read a defined term, then read how it is used. Is the definition acceptable given how that term is used throughout the agreement? If not, you need to either edit the definition itself or edit the section(s) in which the defined term is unacceptably used.
- Another obvious example is limitation of liability and indemnification. Is your obligation to indemnify carved out from the limitation of liability, meaning your obligation to indemnify is unlimited? How do limitation of liability and indemnification affect each other and affect other provisions in your agreement?
Each section in your agreement does not stand on its own. Each section is like a chain in a complicated, patterned link; all sections inform and affect each other. See the full picture.
Do account for human nature
Understanding human nature can be one of your biggest advantages in a contract negotiation. For example, consider a scenario in which you agreed to review and redline a customer’s template agreement. It often goes a long way to work with the language in the customer’s template to minimize redlines instead of fully deleting and replacing verbiage. Seeing tweaked verbiage instead of fully deleted sections with red strikethroughs can have a positive mental effect on your counterpart in the negotiation. Of course, if the language is entirely too far off, you sometimes must delete and replace, but it’s best to avoid it when you can.
You can even use this type of positive psychological approach on a smaller scale. For example, instead of deleting an entire word just to change its capitalization like this, change only the first letter like this. It might be more pleasing to the other side, causing them to enter negotiations in a more conciliatory mindset.
Do draft clearly
One of the most crucial functions of contracts professionals is drafting straightforward, precise language that is concise and unambiguous. No need for superfluous language unless there is a business, or other, reason for it.
For example, be very intentional with your definitions. Each definition should serve a necessary purpose and be tightly drafted.
Importantly, make sure you’re not agreeing to overbroad language. An obvious example is a requirement to comply with “all laws.” You’ll likely narrow this language to “applicable laws.”
One trick you can use when drafting particularly challenging language or being creative to explain a complicated concept in an agreement is to ask yourself, “If I were no longer at this company tomorrow, could someone pick up this contract and understand what is trying to be accomplished here?” If the answer is no, it’s time for a rewrite.
Do communicate well internally
Few occurrences in the workplace waste time and resources more than miscommunication. Imagine drafting language in a contract for the business team only to find out, after you painstakingly edited the verbiage, that you misunderstood the question asked or that question was miscommunicated to you… or both. To prevent this waste of time, communicate well with your internal clients. Ask questions when needed. Jump on a call if it would help.
Even if you try to communicate exceptionally accurately, miscommunication may still happen. If so, get back on track as soon as you discover the misperception so you minimize the time lost.
Do use a process that works for you
Follow a process that works best for you. If you need to review indemnification, limitation of liability, and other dense provisions first while you’re freshest, do that. If you need to start your review, take a break, and return to the agreement later, do that. If you need to read and redline the whole contract start to finish in one sitting, do that. While we do need to be flexible as contracting professionals, we can often work in a way that helps us produce our best work.
Don’ts
Don’t lose focus on what’s important
Do not miss the forest for the trees! For example, you don’t want to be so focused on somewhat irrelevant definitions that you decrease your attention on liability shifting, cost incurring provisions, and other provisions your company cares about. Generally, and simply put, you want to pay particular attention to the following categories of provisions:
- provisions your company cannot comply with,
- provisions your company does not want to comply with, and
- provisions that could cost your company money. A non-exhaustive list of provisions that could affect your company financially includes:
- payment terms,
- liquidated damages,
- indemnification, and
- limitation of liability.
If it helps to regain focus when you feel a bit lost, think about how you would feel if a particular contract affected you personally. Use that empathy to put yourself in your company’s shoes. This may make the path you should take very evident. For example, would you want to agree to pay out a contract you terminated for products and services you didn’t receive? You probably wouldn’t, so the finance team at your company may not either.
Don’t leave out affected stakeholders and decision makers
In the scenario just described, of course, you want to involve finance in the decision and, possibly, in the drafting as well. Do not leave out stakeholders and decision makers at your company if you are drafting language or negotiating agreements that may affect them. If this process will involve an internal client or a department’s budget, you want to collaborate with those people and departments. Additionally, follow your company’s internal policies on who needs to be involved in certain decisions as they pertain to your agreement drafting and negotiation.
Don’t cause excessive, unnecessary delay
Negotiations can take time but work hard to avoid causing long and avoidable delays yourself. Of course, you don’t control the entire negotiation. If you can’t get timely internal approvals within your company, perhaps you can escalate. You may not always be able to control the response time of those in your organization, but you can control your turnaround time. Additionally, you cannot control the response time of the other side, but you can do your best to not delay drafting and negotiations.
If you are working on a contract review that will take a while, explain that to your internal clients, and tell them why it will be a long review to set proper expectations internally and allow your colleagues to set realistic expectations for the other side.
Don’t waste your creativity
Absolutely contracting professionals can be creative! Instead of saying you cannot accomplish something, ask how you can accomplish it with well-drafted verbiage. It may not be possible, but it’s worth brainstorming to test the concept -- especially if your company and its business team needs to do so.
Don’t reinvent the wheel
Keep a bank, or playbook, of well-drafted and effective language you may need again. If you or a colleague took the time to craft useful language, no need to waste time rewriting it when you need similar verbiage again. To the extent possible, share this playbook among your team and with a wider group within your organization, so they can feel empowered to use the playbook and handle common drafting questions on their own.
Don’t lose version control
Have you ever been involved in a negotiation and agreed to terms on a call only to receive an old or incorrect version of the contract from your counterpart after the call? It’s frustrating for everyone and it delays the negotiation, which can hurt the business. Being an organized contracting professional is an invaluable skill that becomes incredibly helpful as you take notes on calls and maintain current version control. Be intensely focused on keeping your versions straight and accurate because, in addition to losing time, poor version control conveys an unprofessional and confused approach or, worse, an unprofessional and confused company to on the other side.
Don’t edit your own template
Another drafting mistake that can make your company look a bit chaotic is editing your own template if the other side has already seen it. If you need to change your template for a specific customer, do so before the template ever goes to the customer (or vendor or whoever is on the other side of your negotiations). For advice on templatizing your contracts, see my February 2022 article.
In conclusion, our jobs drafting and negotiating agreements are not always easy as contracts professionals, but we can make a positive difference in a negotiation by employing the above “dos” and avoiding the above “don’ts.” I’ve attached two World Commerce & Contracting reports that fit all of this appropriately. Happy drafting!
1. World Commerce & Contracting Principles 2020
2. Most Negotiated Terms 2020
END NOTES
1. Reference TechUcomp, Inc. article titled, Compare documents in Word - instructions
2. Reference Microsoft article titled, Check grammar, spelling, and more in Word.