Legally solid contracts may not be good for the business.
That’s a conclusion in Best Practices: Assessing And Managing Legal Risk in the June 2007 newsletter of International Association for Contract and Commercial Management. The article cites studies suggesting that well-tuned legal contracts may not be economically logical. For example, “contract terms and procedures have caused resolution of claims against suppliers takes more than 5 times longer in the US OEMs compared with companies like Toyota and Honda.”
It also suggests that technology can help rationalize contract drafting “by enabling consolidation of data and experiences and the ability to make portfolio assessments.” This is another example of “evidence based law,” that is law practice based on empirical data rather than myth.
At minimum, the article raises an interesting question for law departments and firms that have standard contracts, even carefully vetted ones. Are they drafted to optimize business outcomes? And do you have longitudinal data to track outcomes so that you can adjust terms in the future? Contract management systems have many benefits; now add the potential to improve contract terms.