There are obvious ways to make drafting legally binding agreements better, faster and cheaper.
Fortunately I’ve been discovering ways to do just that in my career as a lawyer since 1983. I’ve learned techniques from many colleagues and clients across numerous industries, areas and countries.
Legally binding agreements are central to how business works. Contracts are literally useful for anything that is legally permissible. My message in one sentence is that nothing improves contract drafting productivity more than working with tested and standardised processes and templates. If you know all about that, then you are dismissed, read no further.
As a generalised approach I’m recommend the seven steps below. The first six steps are on process, the seventh is on template and clause selection.
All steps are useful in numerous situations. They steps fit within the context of the above Contracting Framework. They apply for agreements for a person, company or organisation to do any number of things. It may be for a one-off specialised service, to form an ongoing legal relationship between two or more parties, safely purchase a valuable asset, or indeed to do any number of things.
Contact a lawyer at any of the seven steps for guidance, it can fast track your work.
1. What is the outcome?
You have a job in mind to be done, a transaction of some type. Begin by defining the target outcome. The outcome may be for a short or longer term business relationship or completion of a specific job.
Now note the benefits of a legally binding agreement for each party. Also consider the interests of non-party stakeholders. What does success look like for each?
If a longer term or ongoing relationship is sought, there may be a cycle of activity, or branching out of a series of results. Flesh those out.
2. What are the activities, assets and risks?
To produce the outcome you’ve selected in step 1, identify the activities, assets and risks involved. To speed this work, ask a lawyer if a guide, checklist, questionnaire or template is available. This can race you straight to step 7.
If the agreement is for development or delivery of a product or service, you may need to set a budget, seek investors, and define how people, components and other resources are to be sourced. What milestones apply before any payment is to be made?
Is guidance needed from a third party subject matter expert on a technical, financial, accounting, managerial or other topic? Now’s the best time to get this.
If there is to be use of intellectual property, consider who is to produce it. Who is to own or control it? Listing of each activity, asset and risk will trigger thinking on laws that can apply, protect a party or require compliance.
3. What is the best workflow?
A pattern will have emerged from the definition of activities, assets and risks in step 2. For them and to the outcome you defined in step 1, think through, sketch or list in bullet points and chronological order each step for a suitable workflow or business process.
They are a way of getting things done. Consider the pros and cons of alternative ways. What should be the logistics and cloud IT system? Would outsourcing, insourcing, subcontracting, partnering, co-creating and other collaborative ways to get things done be better, cheaper and faster? Think about ways to get to success against current and future obstacles and competition.
4. Architect or model the business
Long ago I realized that each type of business contract is a definition of a distinct business model. With the work you’ve done so far you may be able to picture the business architecture or business model for the legally binding agreement you need. Architect or model what you picture. Do it by writing a short note or business case, a sketch or slide presentation. Ask colleagues for feedback.
Whatever documentation method you use, your aim in step 4 is to test and settle on a structure of inputs and outputs suiting the results from steps 1, 2 and 3.
With work completed in step 4 you may be ready to share or expose a short form proposal setting out deal point to other parties, and stakeholders. This will be at this pre-contract stage. It’s the deal making stage. Considerable progress can be made between prospective contract parties when there is only a short list of apparently simple decisions to be made.
Also, in some cases early exposure can avoid or reduce – length and convoluted negotiations, expensive drafting and redrafting time, or being sent back to the drawing board.
5. Set obligations
We’ve got to the nitty gritty. List in detail, the necessary and specific obligations that each party must perform, to achieve the outcome set in step 1. The obligations should mesh with the workflow, activities, assets, risks, business model or system settled in steps 1 to 4.
Seek to make obligations “SMART”, ie Specific, Measurable, Achievable, Realistic and Timely. For each obligation query what monitoring, reporting, checks and balances are needed to keep to the plan to get to the outcome. This often involves careful selection of appropriate clauses, an activity set now and carried out in step 7.
6. Money matters
It is best to address money matters only after steps 1 to 5 are completed. This delay has the advantage of placing money decisions on the strong foundation work done in steps 1 to 5.
A common mistake in contract negotiations and drafting is to talk about money too early. It is best to not allocate cake slices until the cake’s ingredients are selected, measured, mixed, and baked.
For expenses ask why money is budgeted on the things selected? For returns, ask if it appropriate to pay certain levels of remuneration or share certain percentages of revenue. Who is to pay who, for what, on what financial basis (gross, net, something else?), how much, and when? Pull all that together, if it is a product to be made and delivered – what are the expenses, who earns the revenue, when is payment to be made or not made?
7. Select the appropriate type of agreement and clauses
In this final step you’ll select the type of agreement which best suits. Into it you’ll pour your work in steps 1 to 6. That work will reduce the time for selecting an agreement format and clauses that best suit your specific situation.
The evidence is undeniable, agreement readers are inspired to sign and return agreements and other types of legal documents faster when:
- they are well designed – there are many format(*) and layout(**) options
- they read well,
- they put the emphasis on practical details, and
- they have clauses that are appropriately and suitably short, or long.
* The format of business agreements can be, for example, an online agreement with a “click to agree” checkbox, a short letter or an email.
** Layouts too vary. Consider alternatives to the traditional “tombstone” layout which may have a schedule at the back. It is usually far better to get straight to the point by putting on the first page a schedule of the practical deal points or variables. Populate the schedule with product specifications, delivery times, installment sums etc. With the schedule at the front the agreement for readers is more immediately relevant, and easier to read, understand and assess. A bonus is that layout facilitates easy template re-use. Immodest plug, modern formats and layouts are my speciality.
Selection of appropriate clauses involves a level of know-how that cannot be captured in a short article. It would easily take a thousand pages or more to explain clause types and their functionality and uses for different types of business agreements.
After almost four decades of drafting experience I can draft a business contract about almost anything once there is clarity about the circumstances in steps 1 to 7. Follow those steps and your contract drafting – whether done by you or a lawyer – will be better, faster and cheaper.
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