Managing Legal
The Point
Some contracts are more important than others. Figuring out what’s “good enough” depends on the deal’s potential consequences — both good and bad.
Some are considered “bet-the-company”. They call for a degree of quality, investment of time, and costs (especially lawyers’ fees) commensurate with their potential benefit and potential risk. Other, more routine, “run-the-company” agreements might not warrant the same mix of quality, time, and costs.
In business contracting there is no such thing as perfection; only compromises in the allocation of a company’s resources.
This Matters to Your Business
Whether bet-the-company or run-the-company, what’s put in a contract is always important. Always potentially consequential. For good or for ill. Lawyer and prominent contracting expert Ken Adams describes the stakes:
“Dysfunctional contract language throws a wrench into the contracting process:
- By making contract language harder to read and more confusing, it wastes time and money at every stage of the process: drafting, review, negotiating, and monitoring enforcement.
- It can result in suboptimal outcomes in deals that get done.
- It can result in deals getting so bogged down that they don’t get done.
- It can hurt your competitiveness, if your competitors have clearer contracts.
- It leads to disruptive disputes, with some ending up in messy and expensive court or arbitration proceedings.
- It demoralizes those who work with contracts.”
Because …
Bet-the-company contracts (say, in M&A, or for a long-term and high-dollar sales deal, or in an agreement with a vital supplier) are more likely to call for tailor-made language, serious time of executive staff, and considerable lawyer fees. Run-the-company ones may be more amenable to some level of standardization.
Stanford economist Thomas Sowell, in a context different from business contracting, famously wrote: “There are no solutions, there are only tradeoffs; and you try to get the best tradeoff you can get, that’s all you can hope for.”
But beyond such generalizations, it’s unwise to harbor inflexible expectations about quality, time, and cost in all parts of the contracting function.