A recent posting on the Koncision blog discusses the following question: how do you measure whether your new template agreement is a success? The comments on that post suggest some interesting metrics, including:
- how many people sign the contract without requesting changes?
- how often is the template used by its owners without deal-specific revisions?
- does the new template reduce the time taken between quotation and placing of an order?
- does the new template reduce litigation over the interpretation of the contract? This is a difficult one to measure, as most contracts do not result in litigation, so there may be no meaningful data on this metric.
Other criteria for success are less easy to measure, including:
- are the terms of the template agreement clear and understandable?
Some of these criteria probably work better for standard terms of business (eg in sales contracts, MTAs or CDAs) than in more sophisticated contracts such as IP licence agreements. In our experience, clients do not have formal metrics for measuring the success of their templates (but perhaps you know differently?) Perhaps senior executives do not consider that contract terms are sufficiently important to justify formal systems of measurement, or that metrics won’t provide useful data. Generally, we have the impression that some organisations place a low priority on investing in high-quality contract terms, as evidenced by the following:
- Companies that copy and paste terms and conditions from other companies’ websites. Quite apart from copyright and quality issues, and whether the terms are commercially suitable for the stealing company’s business, the other company’s terms and conditions may have been drafted with another jurisdiction in mind. This can make a big difference to the legal enforceability and interpretation of the terms.
- A variant on the above is using a contract that you received from another organisation in an earlier transaction. We were recently sent a first draft of an agreement by the “other side” in negotiations, where the draft’s “properties” indicated that one of us was the author of the draft (!) Clearly, the draft had been based on a document obtained from some earlier transaction or conference; we had last seen the source document about 5 years earlier.
- Organisations that use the same set of template agreements for a decade or more, without any intervening legal review. Even worse than this is where the original template agreement has been modified by the addition or deletion of deal-specific terms over the years, so that it only partly resembles the original document. We call this version creep.
Even in those organisations where standard terms are regarded as important, the drafting and revision of those terms is often viewed as a house-keeping matter rather than an opportunity for a review of commercial strategy.
Coming back to the original question, here are some further, suggested measures of success, which could be relevant to larger transactions:
- The other party’s lawyers don’t refuse to use the template as the basis for negotiations (this is sometimes encountered in M&A transactions, particularly where the other side uses a Magic Circle law firm)
- The other party doesn’t complain about the length of the agreement. Usually this is expressed as a complaint about the number of pages of text. Where this is likely to happen, a knowledge of formatting techniques in Word can be of great assistance in reducing the page count (eg choice of font, line spacing (including spacing between paragraphs), margins, indentation, paragraphing, formatting of clause numbering, formatting of headings, use of columns etc can all make a difference).
- The organisation’s commercial managers understand the purpose of each term of the template agreement and can articulate why the organisation considers the term to be important.
We would be interested to know if readers know of any other ways of judging whether a template agreement is successful.
Details of our publications, many of which include template agreements, can be found on the Anderson Law website here.