What follows is not legal advice and represents the author’s own insights -- not those of World Commerce & Contracting.
Are you aware of the huge relevance contracts have in our lives? Contracts shape our work and private lives. These boundaries, structures, or rules lay out our modern world. How so? Why is your awareness of this so critical to business and legal action plans?
Although traditional legal education focuses mostly on the scope of litigation, lawyers are also known for drafting, studying and designing agreements before they are executed. Understanding the business, context, goals and reviewing what the applicable law establishes will allow contract professionals to determine strategies for adding effective, tangible, value to contract negotiation.
At some point, the proactive contracting stream might walk through your office door and raise some questions for you -- like these:
- Will the contract template you might soon design offer best practices and solutions for the entire contracting process, production, or operation?
- What does proactive contracting mean to you as it aligns to your job function as a lawyer or contract manager?
Later on, you might face two more questions -- like these:
- During negotiations, have you ever experienced unequal dimensions and effects you did not see coming?
- Do you realize that the smallest and most insignificant contract can have the biggest and most striking effect on a business opportunity?
The flip side of the most insignificant agreement can lead to the most painful discussions and expensive litigations. That’s why such questions come up. There’s more…
What do you understand about proactive contracting?
If you are a proactive lawyer, your approach will go beyond just practicing legal solutions that could help you succeed in a court of law. Being proactive means creating legal avenues to better futures for your clients. This entails taking precautions to avoid potential litigation. It could mean using a different strategy or improving your contracting methods.
The Black’s Law Dictionary, March 30, 20241defines the term proactive: “A behavior that focuses on results and actions rather than acting when something happens. This type of behavior aims to identify and take advantage of opportunities and also to prevent potential threats.”
A proactive contract template would seek to anticipate all potential scenarios derived from the contractual relationship and would offer the fairest answer possible to each one. The goal is to minimize and hopefully eliminate uncertainty that can arise from so many far-reaching legal issues like the questions above touch upon.
Three more questions could arise
Why all this fuss about contractual relationship and not contract execution and what is the difference? When proactively contracting you must analyze how to face events that may arise even before starting to execute the contract. Contracts may have a future effective date that is still far from the signing date. Or, even with an upcoming effective date, the execution of a contract may begin much later in time. And time – short term or long -- matters to all parties.
How can proactive contracting help us? With your legal mindset, you are probably considering how you will mitigate a risk (e.g. in case of breach of the counterparty). On the other hand, if you are on the commercial side, you might overthink about changing market conditions that could affect the business plan. A proactive process would require both mind sets to work together in a coordinated way to design a clear pathway to deal with the unexpected events.
Why should we try to agree, not only on the solutions that are more convenient, but on the fairest solutions as well? Tricky question. But remember, the purpose of having an agreement is to ensure all parties will be “comfortable” with the contract’s execution. Most agreements executed daily are finalized without inconvenience.
The thing is, we want all parties to be motivated to comply with the contract -- not only because certain consequences of the agreement in the event of noncompliance -- but also because, complying with the terms of the agreement is meant to benefit all parties and their businesses!
Get the best agreement possible
The legal profession is not known for being quick to change and evolve, mostly because of regulatory frameworks, risk aversion and the traditional legal education. Over the years, with new theories and studies and with new technologies, the goal of a contractual lawyer remains exactly the same as always. You should do everything possible to get the best agreement for your client, business, or company, by reducing or eliminating risks and by enhancing the best possible result such as earnings, prices, cost reductions, improved services – and so on.
How can you do this?
It depends on many factors such as: specific field, applicable regulation, scale of the deal, market conditions, attitude of the counterparty -- just to name a few. But the main driver behind this trend is to add more value to the lawyer’s work to protect the interest of the customer. To achieve that, you should design your contract drafting and negotiation to incorporate methods that are more productive.
Build your case for clearer language drafting
Legal professionals today are reaching out boldly to clearer language writing, and international contracting is moving ahead to meet this challenge too. Obviously, we know it is difficult to work with very complex negotiations in English with counterparties that do not speak English as their primary language. Moreover, parties with different backgrounds, cultures, experiences, knowledges, concerns, fears, and hopes increase the struggle to understand one another.
Imagine adding the strain of using words, phrases, and concepts not easily understandable to possibly muddle the negotiation and the future execution of the contract. Real and sustained achievements in the real world do not happen just because contracts are signed. After every signature, the work of people, machines, software, and many others are the force that turns what has been agreed into real and tangible results -- assuming that the agreed contract provisions and conditions are clearly understood.
That’s why contracts should not only be for lawyers, and lawyers should not be the only ones that can duly comprehend their meaning. As explained by Helena Haapio: “Some people believe that lawyers are, or can be, in charge of the contracts a corporation makes. That is not so. Matters of contracting are not the exclusive domain of lawyers or legal scholars. Lawyers don’t attend to the preparation of all deals and contracts – business managers and front-line personnel do. Lawyers don’t manage or implement projects or changes based on those contracts – business and project managers do. Business managers make commitments, request bids, and submit quotations and purchase orders over the phone and in email correspondence, send and receive related confirmation and other messages, handle project change and failure situations, and so on. Even though they might not think in terms of contracts, they make, change and handle contracts on a daily basis. They are experienced and business-savvy people, but their concerns are not primarily legal.”2
Sometimes balanced contracts work better
When defining a contractual strategy, it is important to consider the stakes and liabilities of both parties (not only your own).
Sometimes maintaining balance is better than having the upper hand. Parties that reach a balanced agreement that contemplates their expectations and shields them from risky situations, are more motivated to foster the business connected to that agreement.
For example, after winning a legal dispute (or contractual discussion), we might normally assume our strategy was the right one. But we may ask, could there have been a better way to avoid the conflict? We may also ask, which is a better lawyer, the one who prepares a contract that allows clients to win any potential litigation that may arise or the other lawyer who drafts a contract that directly avoids the litigation?
To foster real transformation in legal services and contract drafting, a business needs precise, transparent, and comprehensive legal advice. As contract advisors, we should draft agreements that anticipate risks, mitigate conflict, and avoid litigation to provide a more valuable service than winning a legal dispute.
Have tools for unpredictable challenges
We cannot anticipate all future scenarios or foresee everything contractually. After meeting with your lawyer, you should know the best strategy for facing the legal challenge to your business opportunity. Lawyers perform much better when, with commercial input, anticipate potential problems that may arise, providing from the outset all possible solutions, or explaining the corresponding solution mechanisms.
Jason Fried and David Heinemeier Hansson make a very smart analogy: “You do not make a great museum by putting all the art in the world into a single room. That is a warehouse. What makes a museum great is the stuff that is not on the walls. Someone says no. A curator is involved, making conscious decisions about what should stay and what should go. There is an editing process. There is a lot more stuff off the walls than on the walls. The best is a sub-subset of all possibilities.”3
It is great if you have all the answers when drafting an agreement, but chances are you do not. Anticipate what you can and try to identify the sources from which issues may arise.
Know the business
Lawyers who have a thorough knowledge of the business can identify risks with higher accuracy. This is key to mitigate problems that have a strong probability of materializing and avoid discussions on issues that rarely occur.
This insight may improve the outcome of the negotiations with the counterparty, and it will help to liaise with internal stakeholders. Legal advice is better received by the client or commercial teammates when it is based on a solid business comprehension that ratifies where the risks reside.
What is the best way to draft a proactive agreement?
In other words, how might contractual lawyers add tangible value to contract negotiation? The concept of proactive contracting might be new for some, but it has been used by many legal and business professionals for a long time already.
When proactively contracting, remember:
- The goal remains the same;
- Keep it simple, agreements are not only for those who draft them;
- Sometimes balance is better;
- Address what you can, and provide solutions for what you cannot;
- Anticipate change;
- Know the business.
The proactive contracting stream is screaming: ADAPT! The takeaway is that you can use this approach in the way that fits best for the specific challenge you are facing.
ADAPT means:
- Adapt to the context to ensure the goal.
- Think of the readers of the agreement, make it easy for them.
- Think about avoiding discussions instead of winning them.
- Anticipate everything you can.
- Provide mechanisms to solve the topics that may become issues.
- Know the business to help you make better legal decisions.
The proactive lawyering approach can be mirrored in other areas of law, such as legislation. What if instead of applying legal remedies to things that went bad, we tried to set up legal channels to lay out the future we want? Seeing contracts this way has reinforced the idea, that by following a different strategy you can have better agreements.
ABOUT THE AUTHOR
Born in Uruguay, Maximiliano lived many years and studied law in Argentina. He is currently living in Spain, where he mastered in intellectual property and technology law. Working in well-known law firms in Argentina and international companies in Spain, he developed significant experience in legal advising, negotiation and drafting of agreements and regulatory analysis.
END NOTES
- Black’s Law Dictionary
- Helena Haapio, “Business Success and Problem Prevention through Proactive Contracting”, Scandinavian Studies in Law Volume 49: A PROACTIVE APPROACH, 167
- Jason Fried and David Heinemeier Hansson, Rework, Change the way you work forever (UK: Vermilion, 2010), 80