Drafting standard terms – a thankless task?

tsncsOne of the many tasks that a commercial lawyer is asked to perform, is to draft or revise standard “terms and conditions”.

Definitions

As an aside, the expression “terms and conditions” (or the shorter “ts and cs”) is probably best avoided in a legal setting. The phrase has become part of business jargon, where it is shorthand for standard contractual provisions, such as those which a business seeks to apply to its sales or purchases. As with some other business jargon (eg “due diligence” or “partner”), commercial usage has become a little detached from the original legal meaning.

In traditional English law usage, a condition (sometimes known as a promissory condition, to distinguish it from a contingent condition, such as a condition precedent) is an essential term of a contract, breach of which entitled the other party to terminate the contract. By contrast, a warranty, or term, of the contract, is sometimes understood as a less important provision, breach of which entitled the other party to claim damages but not terminate the contract.

In IP Draughts’ view, this traditional distinction (which is used, for example in the UK Sale of Goods Act 1979) has outlived its usefulness in modern contract drafting practice. Most modern contracts specifically address when a party can terminate for the other party’s breach.

Using the expression “terms and conditions” as a commercial shorthand for standard contract provisions is unlikely to cause legal problems in most situations, but IP Draughts prefers to avoid using legal terminology in this way.

Drafting the blighters

blightOccasionally, IP Draughts is instructed to draft, or update, a client’s standard contract terms. He is currently working on a project to draft standard terms for use by a medical research charity when funding research at universities. Although he has been doing similar work for about 30 years, he still finds it a difficult task to do well and efficiently.

Part of the problem lies in getting clear instructions from the client. They sometimes have a vague idea that they would like their terms to be updated or checked by a lawyer. But they are not intimately aware of why each of the present terms has been included. Sometimes, a term is so “bespoke” that it wouldn’t have occurred to IP Draughts to include it, if it were not already present. No-one in the client organisation knows why it is there. But who is to take responsibility for deleting it from the new standard terms? IP Draughts may have to spend time in discussing its potential implications, the risks associated with deleting it, and so on. This might not be a good use of an expensive lawyer’s time.

A further issue is how to price the task. Should allowance be made for the discussions referred to above? This might result in a price that is difficult for the client to accept.

Who should be doing the drafting? IP Draughts is aware that in many firms, reviewing standard terms is a task for a trainee or junior solicitor. This has the advantage of a low hourly rate, but how good is the review going to be? It is likely to be a desk-based review rather than one that considers the commercial needs of the business.

tell me whyIn the project on which IP Draughts is currently working, he quoted with explicit assumptions, namely that the client wanted simple, standard terms that IP Draughts would base on one of his templates, and that he could ignore the client’s existing terms which are rather detailed and complex. However, the senior executive who agreed the price and the assumptions is not the same person as the manager who has operational responsibility for agreeing terms with universities. The manager, understandably, wants to understand why IP Draughts’ terms are different to those she is used to working with. This has resulted in many hours being spent in discussing the existing terms and the implications of removing the protection given by those terms. IP Draughts’ budget for this project has turned out to be too small.

There is no major deal in the offing, as there would be when drafting a contract for a transaction. So, there is no commercial context in which to assess the value of a lawyer’s contribution. It is human nature that clients tend to undervalue the lawyer’s contribution in drafting standard terms.

IP Draughts doesn’t have an answer to this conundrum. Do readers have any suggestions?

 

2 Comments

Filed under Contract drafting

2 responses to “Drafting standard terms – a thankless task?

  1. This sort of problem is why many software development shops have been using Agile development methodologies. A typical arrangement would involve a number of “sprints” being estimated (at a particular per sprint cost).

    Each sprints involves some work and client feedback which is fed into the next sprint. This can produce excellent software outcomes where clients have little idea what they want, but it also protects the client because they are only being paid for work they do – much like a billable hour only in rather larger units.

    Sometimes the arrangement is a pure “per sprint” payment, but often a reduction in price is offered for sprints over the estimated number required, to make the software purchaser feel that the software engineers have an incentive to estimate correctly.

    I have tried to work on that basis with one or two clients for series A documentation – but it has been hard to map the “sprint” idea onto client interaction properly. As a result I’ve found I’ve had budget overruns.

    The first time I tried it a very simple series A became complicated by a the desire to achieve tax advantages for one party. To do so within the agreed heads of terms was impossible, to the structure of the deal had to be changed radically resulting in endless wrangles between the parties.

    In a sufficiently small firm (and most of my clients have been rather small) you have the advantage that the person you agree the fee with is either the same as or works really closely with the person you have to discuss the standard terms with. The result is that there is no surprise when things change radically.

    One of the very small compensations of dealing with absolutely tiny new startups is they will generally have nothing they are used to or they have something they cut-and-pasted from the internet. Again, throwing all they have away is generally OK with them. They are also sufficiently new that they do understand the use of lawyers’ time in developing standard terms. The time spent thinking through the assumptions behind their services is something they find useful. Often there are commercial matters that they have not thought through that engaging with the contract drafting process throws up.

    But I too have no really good answer to your quandary.

  2. g2-58b332754a41970591ec13f5b1d63170

    You have my sympathies. Bring back the billable hour. I am currently working on a single investor A round investment that has turned out to need as much work as a multi-investor C round (at least). I did give a detailed and specific quote and have managed to negotiate a liitle bit extra … but nothing close to what the legal work on this transaction is worth. Just hoping it will pay off somewhere down the line… another transaction, a referral, something…Back to your dilema reaggardin standard terms for websites and applications – sometimes it doesn’t help that you did everything right..

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