The world of commercial contracts is completely non-standardised. And this is a huge problem for lawyers and businesses alike. It may not be widely talked about but this lack of standardisation results in a huge time drain, creates massive inefficiencies and the complete flexibility we currently have to draft our agreements adds little value. It’s also why it’s hard to innovate, apply technology to create truly disruptive solutions (that’s a whole other piece on its own that I’ll try to write about) and why lawyers are so expensive.

Plugs and adaptors

The lack of standardisation creates a lack of ‘interoperability’. A lack of interoperability means that things don’t work together, seamlessly. For example, in the hardware world, if each company created electronic goods that had a different plug, it would make it annoyingly difficult for us to power our devices. The result would be that we’d all have to buy various adaptors that worked on the wall socket we have in our homes to conduct electricity into our devices. A bit like when you go on holiday and forget to take an adaptor, but in every day life. Imagine having a drawer full of various adaptors that you have to wade through each time to find one that fits.

In the world of commercial contracts, there are no standards so wading through a metaphorical messy drawer is necessary each time before you can make a contract work. In other words, when you send your template agreement to other side, what you’re doing is inviting them to find an adaptor that works on their end. You might ask them not to bother because your template is ‘fair and balanced’, but the reality is, what you deem to be ‘fair and balanced’ often isn’t the same as their take on that. What that leads to in practice is that they have to review your agreement, figure out which bits are acceptable and which are not in accordance with their own preferred positions and ‘adapt’ the agreement before they send it back to you so you can compare it to your acceptable positions and so on. Painful negotiations ensue, often on points that don’t even matter, just because the contract doesn’t ‘fit’ with each party’s preferred position.

What’s more, some of the changes are substantial, but many are stylistic. After all, we have complete flexibility to express ourselves in any way we please when it comes to contract language. Lawyers are masters of it and if they see something that they think could be drafted better, even though it might not change the function of the wording, they’ll often be tempted to change it. And so the red-line ping-pong begins.

The outcome of the ping-pong match is that the parties finally agree on a position they can both live with which is the equivalent of finding a suitable adaptor. This ‘dance’ we all take part in is costly, laborious and creates real life problems. I’ve seen commercial agreements die a death because the NDA took too long. And the relationship was irreparably damaged alongside it.

A severance clause is a severance clause, is a severance clause

The problem isn’t always one of fundamental differences in what we deem ‘acceptable’. It’s that contractual language is too ‘artisanal’. The lack of agreed standard wording to reflect a certain ‘function’ means that each lawyer can use their own language, style or preference to express the same ‘function’. A provision that can be written in one sentence can also be written in ten and the result will often be the same in terms of what it actually does.

Take the ‘severance’ clause as an example:

The three clauses above do more or less the same thing — they serve the same ‘function’, yet they’re all expressed in different words. Why?

As lawyers, we read hundreds of thousands of contracts in our lifetimes. Most of them say more or less the same thing but expressed different words. Legal language is a matter of personal style and opinion, when in fact, it should be standardised — because it is there to serve a function. A severance clause, is a severance clause and that should be that.

Spoiler alert: contractual language isn’t that special

90% of the clauses that make up a 20 page contract are actually boilerplate (stat from the World Contracting & Commerce). Very few clauses are drafted entirely from scratch yet we tinker and we amend until it’s ‘just right’. Do we really need to be doing this and is the cost / benefit ratio proportionate?

The lack of standardisation across clauses that make up the vast majority of any contract drives lawyers to spend most of their time ‘fear-checking’ agreements in case anything has been snuck into language that expresses common functions. But things should not be snuck in. It shouldn’t be possible. People should be able to confidently know what’s in an agreement without having to read each word and being worried that unwanted provisions have made their way into an agreement. When a contract lands on a lawyer’s desk for review, they have no choice but to read the agreement word by word. And if they don’t have time for that? Well, then they risk including provisions in an agreement that could lead to problems in the future. At the moment, many in-house lawyers are prepared to take that risk with ‘red flag’ reviews for agreements under a certain threshold because reading all the words would just take too much time. If that’s not telling of a broken system, I don’t know what is.

But do standards actually work in contracts?

Yes. There are several standardisation initiatives that have saved businesses millions. Examples of standardised documents are prevalent in the finance industry (ISDA, LMA), the construction industry (SFoC), in property law and data protection regulation (SCCs). Standardised legal documents work wonders but the only initiatives to create such standards have been focused on a specific area of law or industry. General commercial legal documents have not been standardised but there’s no good reason for that, other than there’s never been any one push to do that.

oneNDA

oneNDA is our attempt to introduce standardisation into general commercial agreements. It’s a legal-community led initiative to create an open-source, standardised form for the most common and low risk agreement of them all — the NDA. We’ve just launched version 1 of oneNDA which covers your bog standard NDA needs for commercial conversations. The next phase is to build on it to create more ‘functions’ that we can layer on top of oneNDA to make it fit for purpose for a broader use-case (like M&A or sensitive IP protection). oneNDA has already been adopted by over 100 organisations and our objective is to get 1000 companies to adopt it as their own house template by December 2021.

But the question is, can standardisation of general commercial documents work beyond the NDA?

LEGO blocks

It’s true that NDAs are the lowest hanging fruit in the commercial contracts space. Everyone knows they hardly ever get litigated, they’re a pain and they all more or less say the same thing. So the question is, can the concept of oneNDA expand more broadly?

In theory, yes. Why wouldn’t it? The real challenge is whether we’re ready for it. Can lawyers put aside their ‘pride of authorship’ and agree to agree to certain standard provisions for more complex agreements like the MSA, DPA or EULA? And if we took it a step further, would it be possible to live in a world where we have a global, open-source clauses library of pre-agreed ‘functions’ the wording of which had been agreed by the legal community that we can then use to mix and match, ‘lego style’ to build ‘stacks’ of ‘functions’ that create an agreement to suit our needs?

The way I’m imagining it, is that we’d have functions from which we’d abstracted the complexity by representing them in a short, plain English sentence such as: “Liability clause: Capped Liability to 100% of the contract value” and then we negotiated on the commercial principles of those functions on some kind of term sheet, rather than worrying about the word-smithing that make up that function. Once the term sheet is agreed, you click a button and the contract is formed by stacking the agreed ‘functions’.

Don’t get me wrong. I’m not advocating that every single legal provision can be standardised. That’s not possible. There will be elements that require meticulous draftsmanship and complex, bespoke agreements that need a highly tailored approach. That’s worth paying a lawyer good money for. But if 90% of the current contractual language is boilerplate, standardising that would be a huge win.

Do you think broad standardisation is feasible?

I really want to know what you think. If you have an opinion on the idea, please reach out to me on LinkedIn or email at electra [@] tlb [dot] law. I’d love to hear your thoughts.

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