In Praise of Simple Contracts

Nice post from Mark Anderson over at IP Draughts (UK):

To make the terms [of standard contracts] suitable for a variety of factual situations, and to minimise the need for negotiation, the terms should be clear, straightforward, middle-of-the-road, and reasonably protective, while recognising the other party’s legitimate interests. Terms that are based on these features are easier for a supplier to accept and easier for a purchaser to impose, using low-cost administrative staff. Deviate from any of these features and there will be an increase in transaction costs.

Competing with the desire for a simple, inexpensive process is another objective – to minimise legal risk. Some organisations take an aggressive approach to this subject, which is manifested in very ‘protective’ contract terms. These typically include one-sided warranties, liability clauses and indemnities. Often, those clauses are difficult to understand. Sometimes they are not understood by the representatives of the large organisation that is imposing them on a supplier. This becomes apparent during negotiations. Vast amounts of time are spent across the world negotiating these complex provisions, except in those cases where the terms are just imposed.

I couldn’t agree more with this post. When drafting standard service agreements for my clients, I strongly encourage balanced terms, simple language, and an acknowledgement of the other sides needs. While this approach may forgo the most protective position possible, much more is gained in transaction trust, amplification of service values/brand, savings from low (or no) negotiation cost, and the speed with which documents are signed.