Business-Friendly Contracting: Examples and Implementation
User-centered design, simplification, and visualization have already made their way to some practitioners' ways of working. In the field of consumer contracts, experiments have proven how loan documents and credit card agreements can benefit from a new, more user-friendly approach (US Consumer Financial Protection Bureau CFPB 2011; Siegel and Etzkorn 2013).
Further projects have aimed to simplify, for example, an online game's terms of service, a rail network's disclaimer, and a law firm's standard terms of engagement (Clarity2010 Blog; UK Office of Fair Trading OFT 2011). Several projects have looked into the simplification of online Terms & Conditions, end-user licenses, and privacy policies through the use of icons (For a summary, see Lannero 2013).The proponents of plain language (Felsenfeld and Siegel 1981; Kimble 2006, 2012), simplification (Waller 2011a, b; Etzkorn 2011), minimalism (Hetrick 2008) and lean contracting (Weatherley 2005; Siedel and Haapio 2010, 2011) have suggested major changes in document design and drafting, but until recently, not much seems to have happened in the specific field of contracting. Instead, the trend seems to have been toward more complex contracts. For example, in the 1980s a typical credit card contract was perhaps a page and a half or two pages long—but now it may easily cover 20-30 pages.
4.1 Case Studies of Business-Friendly Contracting and Simplified Contracts
Even in the commercial contracting arena, however, some pioneering organizations and innovative professionals have experimented with simpler contracting processes and documents.
4.1.1 Scottish and Newcastle: The Pathclearer Approach
The Pathclearer approach developed by the in-house legal team at Scottish & Newcastle plc (S&N) offers a first example. The legal team at S&N found that in many cases, detailed contract terms were unnecessary, and that too much detail could actually be an obstacle to doing business.
S&N developed an innovative approach which helped reduce paperwork and better identify legal risk (Colquhoun 2007; Weatherley 2005. See also Siedel and Haapio 2011, pp. 119-121). They moved from conventional contracts—tens of pages and exhibits full of dense text— to brief texts, such as the Pathclearer Supply Agreement: a brief letter agreement that drastically reduced the length and complexity of the contract.4.1.2 Agilent Technologies: The 50/50/500 Plan
Another example of contract simplification is offered by Dave Barton (2008)[207], Director of Contracts at Agilent Technologies. For Agilent Technologies’ Customer Contracts organization, the goal of simplicity in agreements was not enough. In what they called a “50/50/500 Plan”, they set numerical goals: reduce the length of most common agreements by at least 50 %; reduce negotiation cycle time by 50 %; and provide more empowerment on contract terms for deals of $500,000 or less. In one example, a services division had previously consolidated six different exhibits describing six different services into one long document of 17 pages. The comprehensive document was efficient in some ways for Agilent: they did not need to worry about which set of terms and conditions to use when preparing quotes and processing customer orders. However, less complexity for Agilent meant more complexity for customers: rarely did a customer require more than one of the services described in the contract. Agilent was routinely sending its customers a 17-page document of which, at most, three pages might apply to their particular needs. The document did not fully take into account its multiple users, and as a result some users had to waste time determining which part of the document was pertinent to their particular transaction.
As part of their 50 % simplification goal in the 50/50/500 Plan, Agilent broke the document apart and re-drafted it into six separate documents, none longer than three pages. The resulting contract was much less complex for the customer.
At the same time, Agilent’s contracts organization increased its capacity to focus on higher value-added business relationships and issues. According to Dave Barton (2008): “The plan restored a sense of purpose in alignment with corporate goals, and this has reinvigorated a great sense of pride.”4.1.3 IBMCloudServices
IBM recently simplified their contract for cloud services offerings, reducing a contract that once was between 30 and 90 pages long, to a contract that is a mere two pages. This project was named a finalist for the 2014 IACCM Innovation Award for Operational Improvement. Based on the positive market feedback regarding the simplified Cloud Services Agreement (CSA), IBM has extended the simplified contracting approach and now has a short, simple, modular master contract based upon the CSA which applies to all of IBM’s offerings, including Cloud, Machines, Appliances, Software and Services (IACCM 2014c). According to Neil Abrams, Assistant General Counsel at IBM, they learned that using a shorter contract takes much less time for the customers and their lawyers. Where there needs to be some negotiation, that can be done faster too (Reisinger 2014). When he began the task, Abrams was the head lawyer for software. Now he is an assistant GC assigned to look for ways to transform the client experience, including simplifying more contracts—all part of the legal team's focus on helping their business satisfy clients and innovate (Reisinger 2014). Webcast recordings illustrating the process and its outcomes are available at the IACCM website (IACCM 2014b, 2015c).
4.1.4 The New Engineering Contract (NEC)
A noteworthy example of using visuals to guide the use and interpretation of complex commercial contracts comes from the UK: the NEC family of contracts. This set of documents consists of several contracts designed for procuring a diverse range of services and goods, plus associated guidance notes and flow charts that assist in the understanding of those contracts.
Originally launched in 1993 under the name of the “New Engineering Contract”, NEC has been praised for its collaborative and integrated working approach to procurement. The implementation of NEC3 contracts reportedly has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved quality (See NEC 2014b, c, d). In their comparison between NEC and FIDIC conditions, the publishers of NEC praise their standard form of contract by noting: “It is probably fair to say that FIDIC focuses on liabilities and risk in the manner of traditional contracts, whereas NEC requires and enables a more proactive and collaborative approach” (NEC 2014a, p. 2). The NEC publishers also highlight that “a feature of NEC is the drafting in plain English and providing for clarity and flexibility. NEC attempts to eliminate the use of legal terms and instead provides for simple language, and gives words their natural meaning” (NEC 2014a, p. 2).4.1.5 Rolls Royce, plc.
At the IACCM Academic Forum of 2013, Shad Haddad (Lead Commercial Officer of Rolls-Royce plc.) presented a paper that reflected on contract visualization in infrastructure development, from both pre- and post-contract award perspectives (Haddad 2013). He first asked about an organization's purpose in entering into a contract: is it to enforce in court or arbitration various obligations on the other party and gain compensation for their failure in undertaking them; or is it rather to provide a statement or formal commitment to the undertakings of the organization's own obligations? Without giving an answer, he then pondered whether the overly complicated “legalese” way of drawing up contracts provides for adequate clarity and accurate interpretation of the obligations of the parties, especially in an already complex project. He concluded that visualizations can help integrate law (especially Proactive Law) and contract management, and transform legal documents into enabling instruments.
His paper included examples of how visualization techniques can provide the parties with clarity on what they require and what they should deliver, thereby helping to promote contractual compliance and shape the procurement process.4.2 Research on Contract Simplification and Visualization
In different parts of the world, pioneering scholars have started to experiment with user-centered contract design and contract visualization. Michael Curtotti and Eric McCreath of the Australian National University have developed prototype tools for visualizing contract definitions in different ways (Curtotti and McCreath 2012). Stefania Passera, at Aalto University, has developed and prototyped visual contracts in collaboration with private and public organizations.[208] Together with Michael Curtotti and one of this chapter's authors, she has experimented with a prototype of automated contract visualization (Passera et al. 2014). At Stanford University, Margaret Hagan and George Triantis are working with students to tackle consumer-contract design challenges, studying, among other things, principles of contract design, communication design, and behavioral economics to understand the dynamics of how lay people interact with legal text and choices.[209]
Researchers who have viewed contracting as an ongoing, common sense-making process between the parties have found that visualization can play an important role in helping the contract parties avoid misunderstandings and inadvertent non-compliance (Passera et al. 2014). Contract visualization has been presented as a way to implement a proactive approach to contracting and law, helping the parties not only to prevent disputes and litigation, but also to enhance the likelihood of successful business outcomes and a mutually beneficial relationship (Passera et al. 2014). The usability and user-experience of the new contract prototypes are in the process of being evaluated. Early case studies are preliminary but encouraging: they clearly indicate positive results and a strong user preference for a simplified and visualized contract as opposed to a traditional, text-only version (Passera 2012, 2014, 2015; Passera and Haapio 2013a, b).
The new approach obviously involves risks. As regards visualization, questions such as potential conflicts between text and images need to be resolved. Some of these questions can be resolved contractually, and others require further investigation. More prototypes, user tests and research are required to analyze, for example, which methods work best for which users or contexts. In any case, the early results indicate that the benefits outweigh the risks, and that much can be gained by merging contract design with information design and visualization.
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