Contract Drafting for the 21st Century: A Conversation Between Ken Adams and Ron Friedmann
I met Ken Adams of AdamsDrafting several years ago. Ken is a practicing lawyer turned contract guru and consultant. He writes a great blog about contract drafting, from nitty-gritty language stuff to big-picture issues. He’s devoted a lot of time to thinking about shortcomings in the drafting process and how it could be improved. I’ve long complained that BigLaw clients whine about costs but fail to exercise their market power to do something about it. One thing they could do is retain experts who could show them how to get out of their rut. Ken is one such expert, so I thought a conversation with him would be enlightening. Ken has also posted Bringing Change to Contract Drafting: A Conversation Between Ken Adams and Ron Friedmann on his blog.
Ron: Ken, most of the lawyers I’ve dealt with think of themselves as artists. Does contract drafting involve artistry?
Ken: I suppose that lawyering might occasionally be sufficiently inspired that you could analogize it to art, but it’s hard to see how that could be the case with contract drafting. Instead, I suspect that transactional lawyers regard contract drafting as a craft, in that it involves application of technique to utilitarian ends. But even that does contract drafting too much credit, in that two features of contract drafting severely limit the scope for creativity.
First, any transaction will closely resemble any number of deals that have gone before, so at its most efficient, contract drafting would be an exercise in efficient repetition. But as things stand, drafters endlessly reinvent an imperfect wheel, with the result that much time and money is frittered away and risk is needlessly added to the contract process. Of course, some creativity is required to come up with language to express innovative solutions arrived at in negotiations, but that currently represents a small part of the drafting workload.
Second, because contract language states rules governing conduct, it’s very limited and stylized compared to other kinds of legal writing. And of the various usages available to accomplish any given drafting goal, generally one will be more efficient than the others, and that’s the one drafters should use. So contract language is somewhat like computer code.
Given the nature of what currently passes for mainstream contract language—a recent Dilbert cartoon described it as “impenetrable gibberish”—contract drafting would seem less a matter of artistry than of voodoo. Contracts should use standard English—the English of educated readers.
Ron: It sounds like you think contract drafting should be a commodity.
Ken: Yes, in large measure. And that’s entirely achievable, given all the sophisticated information-technology tools now available to organizations that produce contracts. Companies that buy stuff or sell stuff generally use a few templates repeatedly. After a certain point, their contract volume will be big enough that it would be cost-effective for them to shift to drafting contracts by having their lawyers or, ideally, their businesspeople complete an online questionnaire. Once the questionnaire is completed, clicking “Done” would cause the system to pull together and adjust appropriately the pre-loaded and pre-approved contract language.
A rigorous document-assembly system for contract drafting would save time and money and would allow transactional lawyers to focus on tasks where they add real value—helping devise deal strategy and taking part in negotiations. But serious cultural obstacles remain. I suspect that people who buy into my view of things currently represent a small minority. Sure, you hear a lot of talk of change, but I’ve seen little in the way of action to back it up. So the vast silent majority perpetuates the current dysfunction.
Since you have a broader perspective than I do, I’d like to hear what you think of the prospects for change, both in general and with respect to contract drafting.
Ron: Until this crisis (which started in with Bear Stearns in March 2008 or with Fannie, Freddie, and AIG in September 2008, depending on your perspective), I would have said the prospects for any real change were close to zero. My blog posts frequently point out that general counsel—the people who pay BigLaw’s bills—love to whine but hate to act. In other words, they complain incessantly about outside counsel fees but rarely exercise their market power to bring about the change they clamor for. Given that the reinvent-the-wheel approach to contract drafting has allowed law firms to reap huge profits, firms have had no incentive to change on their own. And given that their customers (whoops, I mean clients) have merely paid lip service to change, the market has been in a stable, but wasteful, equilibrium.
Now the question is whether the crisis will change either law firm or GC behavior. Smart law firms would take the crisis as an opportunity to offer clients better value. Smart GCs would direct their reduced outside-counsel expenditures to firms that offer better value. Unfortunately, what I’ve seen so far is a push for discounts disguised as alternative fee arrangements. I’ve long argued that merely playing with pricing is inadequate to reduce inefficiencies and improve quality. Instead, you’d need to change how law is practiced. That means, for example, adopting the approach to contract drafting you suggest.
I’m not optimistic that we’ll see meaningful change in contract drafting. Document-assembly software is one of the oldest legal technologies around. I remember there were several products for DOS in the late 1980s. And today users can choose from many credible products and can call on plenty of consultants to help automate the process. Yet document assembly has never gained much traction. Nor for that matter has systematic contract management, but that’s a story for another day.
All that said, you’re where the rubber meets the road on this issue. Are you seeing any changes now flowing from the crisis?
Ken: Despite my frustration, I won’t be waiving the white flag. For one thing, I’ve seen that that there’s a real appetite, at least on the part of individual lawyers, for drafting that’s clear, modern, and efficient.
And when it comes to the process, I’m not surprised that organizations have been slow to embrace document assembly. For one thing, until development of logic-driven document-assembly solutions such as DealBuilder, the technology was relatively rudimentary. Furthermore, for a complete document-assembly solution you need both sophisticated technology and a rigorous approach to language. Otherwise, you’re going to have a serious garbage-in, garbage-out problem. I’d like to think that with the help of my book A Manual of Style for Contract Drafting, the sophistication of the technology can now be matched by the clarity and consistency of the language you load onto it.
And in addition to developments in language and technology, we now have serious economic incentives. To be sure, when it comes to something as ingrained as drafting, you can’t expect lawyers to be rational economic actors. But not all of them will be lemmings willing to leap off the cliff—given that the benefits of a rigorous document-assembly approach to contract drafting can be dramatic, I expect that the more nimble law firms, and the more innovative law departments, will increasingly explore alternatives to the traditional dysfunction.
So I expect change, but it will of course be slow. Do you have any ideas as to how one might encourage change?
Ron: You have to start with the premise that most people do not readily change their behavior, even when it is life-saving. People diagnosed with heart disease rarely follow the advice of doctors to lose weight, eat less fat, exercise, and stop smoking. And half don’t even take their medication. So if people won’t do what’s required to improve their health and potentially save their lives, why should we expect them to change how they work?
That said, change does happen. In my experience, you need the right incentives and leaders who can make the change “safe.” I worked at Wilmer Cutler (now WilmerHale) for many years in a practice-support role, starting in 1989. By the time I arrived, all but a handful of lawyers already had PCs and were using them. It was one of the first large firms to buy and use PCs for law practice. How did the firm implement change? Several partners recognized that a broad-based campaign would be required to introduce computers at the firm, and they made sure the necessary steps were taken. For example, at first the firm intentionally made it hard for its lawyers to get a PC. The aim was to make sure that the first lawyers to get PCs would actually use them and spread the word about the cool things you could do with them—rationing PCs increased their allure. The firm reinforced the message of change in other subtle ways. For example, two senior partners who were in their 50s and had busy practices took the time to learn to touch type. And the managing partner announced that he would send important communications only by email—no more paper memos. In effect, organizational change requires many separate changes, big and small. You have to create incentives and you have to assure those in the organization that change doesn’t entail risk to them.
To change how a company drafts contracts, you’d need a GC to adopt a comparable approach. Of course they’d need appropriate software, but that’s just the beginning. The GC would need to invest political capital to ensure that the entire department adopts the new approach. But you’d want to make sure beforehand that at least a couple of lawyers were eager for change, because imposing change entirely from the top down is tough. Along the way, you’d need training, liberal use of small rewards such to Starbucks cards, recognition of early adopters, and possibly changing evaluation procedures to reflect the new approach.
Now that I’ve said change is hard, do you have examples of companies that have successfully adopted this new approach?
Ken: Certainly companies are reaping the benefits of document assembly. For example, I recently gave a presentation with Karen Gray, a lawyer at Christie’s. She has implemented DealBuilder at both Christie’s and at her previous company, Reuters. If Christie’s and Reuters are using DealBuilder, any number of other companies would benefit from using it.
A problem I’ve encountered at some bigger companies that use document assembly is that they think contract drafting simply requires a technology solution. But ultimately what matters is the contract. I recall being shown one relatively ambitious document-assembly system—it consisted of nineteenth-century language loaded into twenty-first-century technology. That’s counterproductive. But clear language without the technology is only a partial solution, too.
Here’s the foundation of a rigorous approach to contract drafting:
- adopt a style guide (the path of least resistance would be to piggy-back off my book A Manual of Style for Contract Drafting)
- train your contracts personnel in how to use the style guide
- redraft your templates consistent with your style guide
Adding document assembly would be a modest incremental step—it would be a simple matter to develop the necessary document-assembly questionnaires while you’re redrafting your templates.
Ron: That all sounds rather ambitious.
Ken: I’m under no illusion that this is easy. The first step would be to do a simple analysis of the costs (in terms of time and expenses and added risk) and benefits of continuing with your current system versus overhauling your templates and installing them in a document-assembly system. If you’re unwilling to engage in that simple analysis, your head is firmly stuck in the sand.
Of course, implementing a document-assembly system would involve some up-front costs. But you’d get a pretty quick return on your investment. And many of the technology solutions are scalable, so don’t assume they’re beyond your budget.
By the way, I’m not surprised that so far you’ve referred to effecting this sort of change at companies, not at law firms. Aside from features of law-firm culture that impede change, the drafting workload at law firms—they’re generally asked to draft a broad and unpredictable range of contracts with little advance notice—means that it would be challenging to implement a broad-based document-assembly initiative at law firms. Companies generally have it easier: repeated use of a limited number of templates is more conducive to automation.
Ron: I agree that adopting your approach makes much more sense for corporations. You mostly see document-assembly used by individual practice groups in law firms.
So the real change has to come from corporate America. I hope that the current economic crisis does prompt real change. There are some signs of change; I’m thinking of the article Wall Street Lawyers Dumped for Lower-Priced Boutiques, by Cynthia Cotts at Bloomberg.com. If law departments are willing to dump long-standing outside counsel in favor of smaller firms, perhaps they’ll also be innovative enough to invest in document assembly.
But the real impetus may need to come from CEOs or CFOs, who understand better than GCs how to determine value. For any GC who takes issue with that, I propose a challenge: share with us your economic analysis of why, for some reason other than your limited contract volume, investing in a style guide, training, template redrafting, and technology does not pay or why, if you have shown that it does, you haven’t implemented change.
Another potential agent for change is innovative law firms. My impression is that it’s much easier for GCs to pay outside counsel than it is to budget an internal project. A forward-thinking law firm might be able to propose to a client or prospect the set of services you describe, making it easier for a GC to buy them. Beyond the revenue this could generate, the firm would gain favor and likely create an annuity to maintain and tweak the language and system over time.
Ken: I do know of one example of a law firm spearheading a document-assembly initiative for
a client, so you might be right. But seeing as most law departments apparently don’t farm out to law firms work on company templates, I’m not holding my breath.
Ron: I can think of one other way to break the current impasse: a prize. We’ve seen several recent examples of independent bodies offering prizes for technological achievements (e.g., putting a rocket in orbit, developing a robot car, or improving Netflix’s algorithm). A foundation that wanted to decrease the drag of excess legal costs on the U.S. economy could offer a prize to the law department that’s able to demonstrate the biggest savings. Hold on—what drugs have I been taking! That I’m reduced to such notions suggests that maybe the free market is no match for the entrenched legal establishment.
Ken: My vote for breaking the logjam would be to have a vendor make available, on a subscription basis, a broad-based online library of document-assembly templates of business contracts. Law departments and law firms could in effect outsource the bulk of their contract drafting to the vendor. Of course, the vendor would have to establish a reputation for state-of-the-art language, substance, and technology, but that’s entirely achievable. Individual lawyers could subscribe to the system—individuals are quicker to change than organizations. I think it’s significant that vendor document-assembly systems, albeit limited and imperfect ones, are in use in the construction industry and in mid-market lending.
Ron: Let’s check back in a couple of years and see what progress have been made.
Ken: You’re on!
Ron: By the way, here’s a question that has been bugging me. How can lawyers know how to write a contract provision if that provision hasn’t been tested in court? Until a court has spoken, isn’t any discussion of what’s the best approach purely speculative?
Ken: Aaaargh! The notion of “tested” contract language is one of the great canards. I discuss it in my book and in this 2006 blog post. I won’t rehash the argument here, but I’ll just note that there’s something paradoxical about relying on language that was sufficiently dysfunctional that it resulted in the parties fighting in court over what it meant. Drafters should look to articulate, in standard English, the intent of the parties. That why in this blog post I say that the recommendations in my book work in any jurisdiction. If you draft for the courts—whatever that means—and use language that the parties don’t understand, you’re asking for trouble.
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