Complex Contracts - summary of presentation …60afb41c-cf43-4b4e-8dbb...Conventional Contract Law Scholarship – almost exclusive focus on disputes, litigation and negatives –

Complex Contracts: How We Got There – and How Do We Get OutHelena Haapio, [email protected]

29 March 2016

Swiss Re Center for Global DialogueInternational Conference on Contract Simplification29–31 March 2016, Rüschlikon/Zurich, Switzerland

2016 Helena Haapio, Lexpert Ltd / University of Vaasa

© 2016 Helena Haapio, Lexpert Ltd 1


Complex Contracts: How We Got There – and How Do We Get Out

Helena Haapio, Lexpert Ltd / University of Vaasa29 March 2016


Introduction

Helena Haapio, LL.M. (Master of Laws),MQ (Master of Quality), DSc (Doctor of Science (Econ.))

• International Contract Counsel, Lexpert Ltd, Helsinki– formerly corporate counsel in Europe and the US– since the 1990s, arbitrator in commercial contract disputes

• Co-founder and co-leader of the ProActive ThinkTankand of the Nordic School of Proactive Law

• Assistant Professor, University of Vaasa, Finland– cross-professional research on ways to enhance the

functionality, usability and UX of contracts in business


29 March 2016




Complex Contracts

1. What is the problem?

2. How did we get there?

3. How do we get out?

4. Examples and resources


1. What Is the Problem?

Commercial contracts

– do not work in business; many underperform, some lead to disputes

– are not read or understood by those whoare impacted: critical information is lost or mis-understood

– are not implemented or interpreted as expected => unintentional non-compliance, negative surprises


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Complexity Everywhere

Complexity in the documents• individual contracts and terms

• content & presentation: language, look and feel

• what is being offered: value proposition, scope

• sets or layers of interconnected contracts

Complexity in the process• producing, reviewing, implementing those contracts

• finding and acting upon contracts and obligations

Too much data and information for anyone to handle!


Expect More Complexity: Multi-layered Markets, More Actors

See, for example, Guido Noto La Diega & Ian Walden: Contracting for the ‘Internet of Things’: Looking into the Nest. Queen Mary School of Law Legal Studies Research Paper No. 219/2016. Available at SSRN, http://ssrn.com/abstract=2725913


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Lack of clarityon scope and goals

1

Result: Cause of claims/disputes

3Failure to engage stakeholders

Result: Misaligned interests and future opposition

Negotiations focus on the wrong terms and risks

Result: Performance management dominated by blame/fault

7Contracts difficult to use or understand

Result: Users see contract as irrelevant to business needs

9Limited use of contract technology

Result: Inefficiency and loss of quality in performance and analysis

Average valueErosion 9.2%

Legal/contract team not involved early enough

2

Result: Wrong form of contract & extended lead time

4Protracted negotiations

Result: Competitive exposure & delayed revenues

6Contracts lack flexibility. Insufficient focus on governance

8Poor handover from deal team to implementation team

Result: commitment & obligations missed & misunderstood

10Poor post award processes and governance

Result: Repetitive issues and errors causing value loss

10 Pitfalls

Copyright IACCM 2015

Result: Loss of economic benefit; contract a weapon

5

Tim Cummins: Commercial Excellence. Presentation at IACCM Finland event, Helsinki 14 September 2015


http://info.iaccm.com/commercial-excellence-ten-pitfalls-to-avoid-in-contracting


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2. How Did We Get There?

Three main causes:

– Mindset

– Approach

– Design (or lack of design)


The Dilemma

According to their writers, contracts are intended to support, guide and protect the parties.

However, contracts’ current language and look and feel often do the opposite: they alienate people at every stage

– planning and negotiation/eliciting information

– document drafting and design

– implementation

Contracts could do more to help the parties arti-culate, align and achieve their business objectives.


29 March 2016




Cartoon created by Nina Paley. Released under the CC BY-SA 3.0 licence, http://creativecommons.org/licenses/by-sa/3.0/. Source: http://mimiandeunice.com/wp-content/uploads/2011/07/ME_401_QuickJob.png


So How Did We Get There?

The three main causes:

– Mindset

– Approach

– Design (or lack of design)

… are all reflections of the classical legal paradigm, the dominant paradigm in both contract theory and contract practice. Both tend to see contract writing as legal writing…


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What’s Wrong with Legal Writing?

Fred Rodell (1936): two things

“There are two things wrong with almost all legal writing. One is its style. The other is its content.”

Fred Rodell

Professor or Law, Yale University

Goodbye to Law Reviews, Virginia Law Review, Vol. 23, 1936, p. 38 & Goodbye to Law Reviews-Revisited, Virginia Law Review, Vol. 48, 1962, p. 279


“The language of the law has a strong tendency to be:(1) Wordy(2) Unclear(3) Pompous(4) Dull”

David Mellinkoff

Professor or Law, University of California at Los Angeles and member of the California Bar

The Language of the Law. Little, Brown and Company, Boston 1963, p. 24


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The Lawyer Mindset

“Some day someone will read what you have written, trying to find something wrong with it. This is the special burden of legal writing, and the special incentive to be as precise as you can.”

David Mellinkoff: Legal Writing: Sense & Nonsense. West Publishing Co. St. Paul, MN, 1982, p.15


“I teach contract law at Harvard Law School and I can’t understand my credit card contract. I just can’t. It’s not designed to be read.”

Elizabeth WarrenProfessor or Law, Harvard Law SchoolNOW on PBS interview Week of 1.2.2009http://www.pbs.org/now/shows/501/credit-traps.html


29 March 2016




Cartoon created by Nina Paley. Released under the CC BY-SA 3.0 licence, http://creativecommons.org/licenses/by-sa/3.0/. Source: http://mimiandeunice.com/wp-content/uploads/2011/11/ME_491_TooCareful.png


Conventional Contract Law Scholarship

– almost exclusive focus on disputes, litigation and negatives

– little attention to the strengths and successes of contracts and law and to the roles they might play in a best-case scenario, the happy path

– for businesses that want to flourish and stay out of legal problems, classical positive law scholar-ship, despite its name, has very little positive to offer


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Conventional Approach

Traditionally, the focus in the legal field has been on

– the past– past failures

• problems, shortcomings, failures to comply

• delays, infringements, breaches

– reaction to past failures• legal proceedings, remedies to force compliance

• sanctions, punishment, fines

Even contracts are often directed toward failures.


Proactive Approach

What if scholars and practitioners would focus on

• the future

• success rather than failure: how contract partners can

– succeed together, stay on the happy path– prevent and resolve problems together

• contracts (and laws) that are made primarily for the users, the business community, rather than the legal community alone


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3. How Do We Get Out?

• make the current paradigm visible & challenge it

• identify recurring problems and their causes and respond to them – co-create and share solutions

• adopt a new mindset and a proactive approach: see contracts (and lawyers) differently

– contracts: business enablers, not just legal tools; something that can (and should) be designed so both humans and machines understand them

– lawyers: legal architects, engineers, designers


Lawyers as Engineers

“Like engineers, transactional and legislative lawyers

want to make something useful that works for their clients.”

David Howarth: Law as Engineering, Thinking About What Lawyers Do. Edward Elgar 2013, p. 67.


29 March 2016




The Times They Are A-Changin’…

Even in the legal field, the vision and the buildingblocks have been around for quite a while:

– Louis M. Brown, Father of Preventive Law 1950s

– Proactive Law, Proactive Contracting 1990s

– Nordic School of Proactive Law 2004

– ProActive ThinkTank 2007

– Using the Law for Competitive Advantage

– Law and Strategy, Law and Management

– Visual Law, Legal Design


It Is Up to Us!

• our current approach is not dictated by the law; it is “dictated” by tradition, current practices and sticky templates and forms

• we can transform current practices and ask new research questions

• templates and forms can be challenged and changed; mindsets and research agendascan be changed, too


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Users’ Needs and Expectations

UX = User Experience

Usability(Utility, Usefulness, User-friendliness)

Functionality

Adapted from Helena Haapio: Next Generation Contracts: A Paradigm Shift (2013), based on Patrick W. Jordan; Designing Pleasurable Products. An Introduction to the New Human Factors (2002).


Seeing Contracts through the User’s Eyes

What does the user think

and feel?

What does the user see?

What does the user need

to do?

What does the user hope to achieve?


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Contract Simplification Approaches

1) Leave contracts “as is”, but hide the complexity– provide a better (graphical) user interface or guidance:

examples, references, visualization about contracts

2) Change contracts to make them less complex– optimization: plain language, plain design, clear typography

– transformation: abstraction, visualization in contracts, visualization as contracts (contracts as comics)

3) Provide different ways to present the content – contracts as code (smart / computable / algorithmic

contracts): tailor styles or dashboards based on user needs


Contract Simplification: Lawyers’ Concerns

1) Add something, for example, icons, navigation tools, signposts, or explanatory text / layers

Lawyer’s concern: what you add may contradictwhat is already there. And what would a judge say …

2) Delete something, for example, legalese, or text that repeats what is provided by the law

Lawyer’s concern: if you delete something, do you know what you might be getting instead? Do you let the ”invisible terms” enter the picture?


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Preventive Law

“It usually costs less to avoid getting into trouble than to pay forgetting out of trouble.”

Louis M. Brownknown as the Father of Preventive Law

in Preventive Law. New York: Prentice-Hall, Inc., 1950


A Proactive Contract

“A proactive contract is crafted for the parties, especially for the people in charge of its implementation in the field, not for a judge who is supposed to decide about the parties’ failures. Instead of providing the most advanta-geous solution for one of the parties, in case of the failure of the other party to comply with its contractual obligations, the proactive contracting process and documents seek to align and express the interests of both sides of the contract in order to create value for both.”

Gerlinde Berger-Walliser, Robert C. Bird & Helena Haapio: Promoting Business Success through Contract Visualization. Journal of Law, Business & Ethics, Vol. 17, Winter 2011, 55–75, at 61.


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The Suggestion

• a cross-disciplinary research agenda to change the current paradigm

– merge the emerging fields of Proactive/Preventive Law, Legal Design, etc., with insights developed in disciplines outside law

– build on cross-professional industry-academia collaboration and new technology tools

• develop prototypes of contracts that reflect the new mindset, approach, and design; develop tools and methods that help implement these


Borrowing from Other Professions

After we see contracts and lawyers in a new light, it becomes natural to borrow from architects, engineers, and designers some tools and ideas:

• separation of presentation and content for– human readability and machine readability

– ease of ”translating” the information and delivering it in different ways to different users

• design patterns for contracts– goal: more usable and useful contracts, better UX

– common solutions to recurring problems


29 March 2016




© 2016 Margaret Hagan & Helena Haapio, http://www.contractpatterns.design


Additional Information

Helena Haapio & Margaret Hagan: Design Patterns for Contracts.IRIS 2016 proceedings, available on SSRN http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2747280


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We need to bridge the gap– and we can!

From…legally perfect contractsthat prepare for failure and seek to allocate all risk to the other party.

To… usable contracts that promote, facilitate and guide desired action and help manage change.

«Contracts are legal tools:legally binding, enforceable,must cover all thinkable contingencies.»

«Contracts are tools for businessaction and communication: must be clear, understandable, easy-to-use to achieve business goals.»

A New Perspective


Bridging the Gap

• New mindset, proactive approach

• Simplification, visualization

• Business-friendly contract design

From…“Contracts are legal tools, made to win in court.”

To… “Contracts are managerial tools, made for win-win in business.”

«Contracts allocate risk. They are needed only when things go wrong.»

«Contracts add value. They enable business success and prevent problems and disputes.»


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The Contracting Puzzle

Technical & Contextual

Performance & Delivery

Business & Financial

Legal & Risk Management

Project & Contract

Management

Helena Haapio & George Siedel: A Short Guide to Contract Risk (Gower 2013) and Proactive Law for Managers (Gower 2011)


Towards Contracts that Work Before... After...

Business & Project

Managers

Subject matter experts

Contracts & legal

professionals

Clarity

Under-standing

Better decisions faster

Better results

Ease of doing business

Contracts & legal

professionals

Subject matter experts

Business & Project

Managers

“Contracts are legal tools.”“Contracts are needed only in case of a dispute.”

“Contracts are managerial tools.”“Contracts can be used proactively for better business and fewer problems.”

New mindset,simplification,design


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Next Generation Contracts

Easy to Implement

Legallysound

Financiallysound


Final Take-Aways

• See your contracts through the users’ eyes.

• Simplify content and how it is presented.

• Explore visualization.

• Share solutions to recurring problems – join us in setting up a Design Pattern Library for contracts.

• Join in the contract simplification movement –attend the Contract Jam to learn more and explore!


29 March 2016




Additional InformationHelena HaapioLexpert Ltd / University of Vaasa+358 9 135 [email protected]

For more information, see • ProActive ThinkTank, www.proactivethinktank.com

• Nordic School of Proactive Law, www.proactivelaw.org

• The Simplification Centre, www.simplificationcentre.org.uk

• IACCM Contract Design Assessment, www.iaccm.com/contract-design-assessment

• M!ND Contract Visualization, www.mindspace.fi/en/contract-visu

• Lexpert Contract Visualization, www.lexpert.com/our-approach/visualization

• Lexpert Resources, www.lexpert.com/resources


Helena Haapio

Next Generation ContractsDoctoral dissertation,University of VaasaLexpert Ltd [email protected]

Cover: Stefania Passera

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Complex Contracts - summary of presentation …60afb41c-cf43-4b4e-8dbb...Conventional Contract Law Scholarship – almost exclusive focus on disputes, litigation and negatives –