The International Association for Contract
and Commercial Management (IACCM) Contract Standards Committee spent time today
discussing what to include in our project’s Style Guide, not only for the
humans that will read our contracts, but also for the machines. Creating machine readable material is now a
focus of IACCM planning and discussions, including how artificial intelligence,
data analytics and machine learning will impact all stages of our initiatives.
Since The American Bar Association first
published Ken Adams ‘A Manual of Style for Contract Drafting’ in 2004, the
concept of Style Guides has gained widespread and increasing acceptance
throughout the legal profession. We are
now entering a new phase where the focus on creating contracts is no longer
just on drafting the words, but encompasses the entire contract design. The ground-breaking work of Robert de Rooy,
an attorney based in South Africa who founded Comic Contracts, provides an
extreme example of this (see http://jincom.com/comic-contracts).
By Jincom
Traditional Approaches to Contract Design –
Loss of Contract Value and Contracts ‘Left in the Drawer’
At a
recent EU working group Tim Cummins, President of IACCM, heard the comment that
‘Contracts are written by lawyers, for lawyers, in the expectation of
litigation.’ The layout, content and
length of traditional contracts have left those who are responsible for
accepting and implementing their terms feeling confused and underserved by the
entire process. IACCM Research has
revealed that ‘Only 17% of those in the study feel that the contracting process
helps them do their job’ and pre-award contract practices and poor contract
management results in ‘value erosion of 9.2%’.
IACCM Member research conducted within the Oil and Gas Sector concluded
losses in their industry exceeded 15%.
Normal contract losses would be in the range of less than 4%. Telecom
Contract analysis highlighted over 3,000 obligations. A Flesch Reading Ease Test run on an NDA
revealed the longest sentence had 400 words and the average sentence was 70
words long. Businesses and contract managers are expected to deliver successful
outcomes in the face of increasing contract complexity. Contract Management
Software has struggled to keep pace with the shift of focus from, primarily,
goods to complex services.
Research from IACCM results
Creating Better Contract Outcomes
IACCM is recording rapid growth in the
number and variety of different organizations interested in exploring and
establishing contract norms, standards and better contract outcomes. In its work with governments, academic
institutions and organizations such as the Society of Computers and Law,
CommonAccord (www.commonaccord.org), the EU, The Open Contracting Partnership
(www.open-contracting.org) and multiple industries worldwide, common goals,
issues, and trends are emerging. Contract analytics is proving to be a
particularly effective tool. On the quest to establish norms for human and
machine readable ‘clause libraries’, contract analytics can compare and
identify where thousands of contracts are largely the same and where they
differ. Analysis by KM Standards of
Master Services Agreements from more than 150 companies revealed that 80% of
the content demonstrates similar underlying values and principles. In other words, complexity is mostly not due
to variability in commercial value or offering, but rather because of
individual lawyer preferences over wording.
There is widespread support and acceptance
of the benefits of greater transparency and consistency both in contract design
and in creating better contract outcomes.
The era of bespoke contract drafting of common terms is drawing to a
close in favour of establishing standardised wording that conforms to Style
Guides and facilitates machine reading and learning. We are beginning to understand and create the
foundations of how humans working alongside machines might codify the law.
Improved contract design and establishing
contract norms is increasingly and measurably becoming a key component of
successful contract outcomes and is the future of contracting.
However, what we also currently know is
that although machines can read contracts and even tell clients what they say
(which makes them excellent for example in matters of precedent), they cannot
exercise judgment or innovate like a human. Lawyers are therefore uniquely and
unequivocally positioned to provide complex analysis and advice and so, for
now, these represent the critical roles of the future.
Wendy Lawson-Shanks is Director of Advisory
Services for The International Association for Contract & Commercial
Management. She is a solicitor (non-practising), a member of the Society for Computers and Law, The Law Society, and an associate member of the American Bar
Association.
