The 7 Deadly Sins of Contract Drafting

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The 7 Deadly Sins of Contract Drafting

   How (not) to put your career on the
         fast track to purgatory


             By Jamie Wodetzki
                         Disclaimer
Don’t think you’ll get out of here without at least some kind of product
plug from Exari about automating contract drafting and maybe a demo of
how intelligent document assembly cuts costs and eliminates many of the
errors that will otherwise get you in trouble, and some stories from the
front line of legal service automation at some leading companies and law
firms around the world.
    The 7 Deadly Sins of Contract Drafting
 Lust – Don’t lust after sexy documents. Formatting matters. Beautiful
  fonts don’t.
 Gluttony – Don’t draft fat, excessively long contracts that bloat costs and
  don’t really help your clients.
 Greed – Don’t expect every clause to go your way with take-it-or-leave-it,
  one-sided standard form contracts.
 Sloth – Don’t be complacent about slothful drafting, then make mistakes
  and typos when time runs out
 Wrath – Don’t be caught with the wrong clauses when things go bad and
  the parties get mad
 Envy – Don’t just focus on the big things and overlook the little things.
  Keep an eye on the boilerplate, too.
 Pride – Don’t be overwhelmed by an excessive love of your own drafting.
   Who Cares? Two Competing Views…

 Nobody Cares – A little bit of sinning
  never hurt anyone
 Everybody Cares – Sinning will land you
  in career purgatory
Who Cares? It Depends on the Economy…

 In boom times, people care less
   They focus on growth
   They focus on building relationships
   Contractual fights are a distraction
 So… a little bit of sinning is OK
  BUT in a Global Financial Meltdown…

 COST becomes an obsession
  …and the cost of contracts must come down
                 and
 LITIGATION becomes a business model
  …and any mistakes go under the microscope


 So the cost of sinning is magnified…
Lust
                       Lust

   Don’t lust after sexy documents.
   Formatting matters.
   Beautiful fonts don’t.
   Substance over style.
   But style can be substantive…
                      Lust

 Suppose a windstorm rips the electric cables
  from your roof, sets fire to your favorite shrub
  and burns down your house…
 What does your insurance say?
 Are you covered?
 It could depend on formatting…
                     Lust

 Scenario 1 – You lose…
                    Lust

 Scenario 2 – You win…
                      Lust

 Scenario 3 – The litigators win…
Gluttony
                     Gluttony

   Don’t draft fat, excessively long contracts.
   They are slow to draft.
   They are costly to review.
   It is harder to catch all the mistakes.
   They are more painful to negotiate.
   There are more opportunities for ambiguity.
   And more opportunities for cross-ref. errors
                         Gluttony
 Here’s a good example…
 Before
    Notwithstanding the generality of the aforegoing, the
     liability of the Company to make payouts of all and any
     amounts under this agreement shall be contingent upon
     the strict observance and fulfillment by the Applicant of
     the provisions of this agreement insofar as they relate to
     anything to be done or complied with by the Applicant.
 After:
    You must comply with all terms of this agreement before
     we will pay out any amounts.
                                              From The Simplified Blog
Greed
                      Greed

 Don’t expect every clause to go your way with
  take-it-or-leave-it, one-sided standard forms...
   Being inflexible is not good for the relationship
   Are blatantly one-sided terms really essential?
   Too many deals will boomerang back to legal
   Does intransigence waste more legal time & cost
    than the risk benefits it confers?
   In a down economy you may need to loosen up
Greed
Sloth
                     Sloth

 Don’t be complacent about slothful drafting.
 Mistakes will bite you when time runs out.
 Some examples…
   The Dewey Ballantine $92M typo
   The TransAlta $24M cut & paste
   The JPM/Wachtell $800M “inadvertent sentence”
Wrath
                   Wrath

 Don’t be caught with the wrong clauses when
  things go bad and the parties get mad.
 Angry parties litigate.
 The litigation microscope is not kind.
 Consider the humble dispute resolution
  clause…
                       Wrath

   What does your boilerplate say?
   When is mediation best?
   When is arbitration best?
   When are the courts best?
   Where should you arbitrate?
   Which rules are best in which scenarios?
   Did that junior associate guess correctly?
Envy
                             Envy
 Don’t just focus on the big things… (IACCM top 10)
      Limitation of Liability
      Indemnification
      Price / Charge / Price Changes
      Intellectual Property
      Termination (cause / convenience)
      Warranty
      Service Levels
      Payment
      Delivery / Acceptance
      Confidential Information / Data Protection
                       Envy

 Little things can make a difference too…
 Little clauses like…
   Assignment (to an insolvent affiliate)
   Force majeure (which excuses too little/too much)
   Insurance (which is woefully inadequate)
 Little contracts like…
   The humble NDA
   Anglo-Dutch Petroleum’s $70M NDA
Pride
                    Pride

 Don’t be overwhelmed by an excessive love of
  your own drafting.
 Don’t think you’re so great that you always
  need to get your way.
 And don’t underestimate the other side.
      OK, Sinning is Bad, Now What?

 Lawyers in law firms…
   Focus on value
   Automate where fixed price pressure is on
   The law firm 80:20 flip
      Don’t waste 80% of time cutting & pasting 1st draft
      Get automated 1st draft in 20% of time
      Focus 80% of attorney time on details and value
   Self-service client contracts
      Useful, cost-effective, sticky
        OK, Sinning is Bad, Now What?

 In-house counsel…
     Cut costs, manage risk
     Put heat on law firms for fixed price services
     Get efficient & bring more work in-house
     The corporate counsel 80:20 flip
        Don’t waste time drafting anything you don’t have to
        Push 80% of predictable deals out to self-service
        Focus your time on the more complex 20%
        Review by exception
            Show me…

Exari Contract Automation Demo




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