Progressive Standardizationstandardized contracting can also be flexible
When we think about standardizing legal terms, we face a practical problem. We all know that many repeat business transactions can and should go through on standardized forms, without one-off changes that aren’t worth their process cost. But we also know from experience that any standard process inevitably runs into exceptional deals that require negotiation and custom legal changes.
In part for this reason, many lawyers resist standardization of terms and contracting processes entirely. Having led out with a standard, it’s unclear how to fall back gracefully to one-off negotiation for the exceptions, even if 99% of deals fit the standard mold, and get handled out of legal sight. By contrast, they know they can handle 100% of deal flow the old, ad hoc, manual way. Many fear blame for “losing” so much as a single opportunity on account of newfangled “innovation”.
False trade-off.
Let’s start with a cartoon of a contract. Something short and intuitive, with all the key features of a repeatable pattern transaction, but small enough to bite off in blockquote-size bits.
Elvis Impersonation Agreement
Performer and Client agree as follows:
Performer agrees to perform a live Elvis impersonation, singing at least three Elvis hits in full costume, at 1 p.m. on June 1, 2020 onstage at 123 Main Street, Oakland, California.
Client agrees to pay Performer $500 in cash immediately after the performance.
The parties have put all their terms for the performance in this agreement. This agreement will be governed by California law.
Performer
Joe Slick
Joe Slick
May 15, 2020Client
Jane Birthday
Jane Birthday
May 15, 2020
This is a terrible form, and nobody should actually use it. But for our discussion, it has all the key components:
- two parties
- a few deal-specific terms: time, venue, fee
- signature blocks, to show assent
Now suppose that Joe Slick impersonates a very catching Elvis, and business begins to boom. He learns a few hard lessons about legal terms along the way, and his form grows and grows with his experience. Money down up front. Ensure the venue has a music license. Specify minimum sound and safety requirements in a rider. And so on.
Eventually the key deal points get lost in the mix, so Joe starts to format his proposals more like this:
Elvis Impersonation Agreement
Performer and Client agree to the Joe Slick Elvis Impersonation Terms attached as Exhibit A.
Performance Date: January 1, 2020
Performance Time: 7:30 p.m.
Venue: 123 Main Street, Oakland, California
Fee: $750
Performer
Joe Slick
Joe Slick
July 9, 2020Client
HokeyCo, Inc.
Charlie Corporate
Charlie Corporate
Chief Executive Officer
July 12, 2020Exhibit A
[Pages of terms follow.]
This puts all the deal-specific terms up front, where everyone can find them without spelunking. Of course, sometimes clients still need or want changes to legal terms. They make these changes, and agree to them, by marking up Exhibit A.
In time, as Joe’s pile of old contracts continues to grow and revisions to his “standard” terms continue apace, he finds he has trouble remembering which deals he signed on which version of his terms, and whether he made custom changes.
He solves this by versioning his terms. Now Exhibit A begins like so:
Joe Slick Elvis Impersonation Terms
Version 7.0.0
Performer and Client agree:
[Pages of terms follow.]
That way, when Joe looks back at an old contract, he can tell immediately what version of his form was used.
When clients just have to mark up the terms, Joe makes his own change, in the very next turn, to call that out for his records:
Joe Slick Elvis Impersonation Terms
Version 7.0.0Based on Version 7.0.0[…]
This way, it’s clear that he made changes for the deal, as well as which version of his standard he ought to compare to review those changes quickly.
At a certain point, Joe realizes that he has more leverage. What’s more, his terms now anticipate pretty what what most clients’ lawyers want, minimizing his closing costs and delays. Rather that send around copies of his latest form, which feels a bit like asking for changes he doesn’t want, Joe puts his terms on his website and signs deals like so:
Elvis Impersonation Agreement
Performer and Client agree to the Joe Slick Elvis Impersonation Terms at https://joeslick.com/terms.
Performance Date: January 1, 2020
Performance Time: 7:30 p.m.
Venue: 123 Main Street, Oakland, California
Fee: $500
Performer
Joe Slick
Joe Slick
July 9, 2020Client
HokeyCo, Inc.
Charlie Corporate
Charlie Corporate
Chief Executive Officer
July 12, 2020
In other words, Joe no longer attaches his terms as an exhibit. Rather, he incorporates them by reference to his website. The difference doesn’t really matter, since both exhibits and his website are under his control.
When the odd client just has to make a legal change, and is willing to pay for it, Joe’s contract process can handle gracefully. He simply replaces the reference to this website with the old reference to an exhibit, and attaches his terms that way:
Performer and Client agree to the Joe Slick Elvis Impersonation Terms
at https://joeslick.com/termsattached as Exhibit A.
Further down the line, after attending many an Elvis Impersonator convention, Joe and other impersonators realize they’ve duplicated an awful lot of effort, preparing and negotiating terms of their own for performances. Especially with big, repeat clients like event planners and entertainment companies.
So they bring together a working group representing both sides, form an industry association, and publish a standard set of terms for professional Elvis impersonation.
Joe might leverage this new standard by way of a certified form, like the Waypoint NDA, and propose a contract as a packet like this:
Standard Form Certificate
Apart from the specific deal terms I have filled in below, I certify that the following proposed terms are exactly the same as The Professional Elvis Entertainment Association Standard Performance Terms at https://proevlvisassociation.com/forms/performance.
Signature: Joe Slick
Name: Joe Slick
Date: January 1, 2021
Performance Date: January 1, 2020
Performance Time: 7:30 p.m.
Venue: 123 Main Street, Oakland, California
Fee: $500
PEEA Standard Peformance Terms
[…]
Performer
By: Joe Slick
Name: Joe Slick
Date: January 1, 2021Client
Cobb Entertainment, Inc.
By:
Title:
Date:
This approach makes sense when potential clients are used to seeing complete packets of terms, when clients may not have heard of the industry group form, or when many clients will want to make changes.
When most deals go through without changes, or when the standard form’s well known, Joe’s probably better off proposing even more streamlined springboard agreements:
Elvis Impersonation Agreement
Performer and Client agree to the standard terms published at https://proevlvisassociation.com/forms/performance.
Performance Date: January 1, 2021
Performance Time: 6:30 p.m.
Venue: 123 Hoppin Street, San Francisco, California
Fee: $1,500
Performer
Joe Slick Entertainment, LLC
Joe Slick
Joe Slick
Managing Member
November 7, 2020Client
Accelerated Promotions, Inc.
Don Talent
Don Talent
Chief Executive Officer
November 8, 2020
The duplication is gone. Instead of copying the standard terms and promising that they are in fact the same as a webpage, with a link for verification, the document simply points to the webpage, in one step.
Of course, the industry association’s form may also change. But we’ve solved that problem before, with versioning. The industry association can do the same.
Elvis Impersonation Agreement
Performer and Client agree to the standard terms published at
https://proevlvisassociation.com/forms/performancehttps://proevlvisassociation.com/forms/performance/1.0.0.[…]
When the parties sign their agreement, they can file a copy of version 1.0.0 of the standard legal terms with their agreement. If they fail to do so, or lose their records, they can search an archive, like archive.org or perma.cc, for a copy on the date of their signatures, or near enough to it. So long as the industry association commits not to change a published version after the fact, and instead put new changes in a new version with a new number, its members can rely on references with confidence.
Just as before, when everything was attached or published under Joe’s control, it’s simple enough for him to fall back to attaching the standard when the other side insists on a change.
In my own working experience, the cost of paving the path toward quicker closing in this way is minimal or nonexistent. Numerous times, my clients have proposed springboard agreements to counterparties, only to receive markups back that turn references to links into references to exhibits, paste the terms into the new exhibit, and mark up from there. Which is exactly what I would have done if they’d asked.
In other words, opposing counsel handled the mechanics of falling back for me, without ever being told how. When clicking the link to the standard forms provided a Word copy download, more often than not, the markups were easy to review and mark up in turn, as well. Which is exactly why the Waypoint NDA and all the forms on commonform.org provide Word format downloads, in addition to guaranteeing integrity and permanence across numbered editions.
A few simple publishing and referencing techniques make standardized legal terms work. Not just for the vast majority of deals that close without my involvement. But also for the deals where my specific supervision and involvement prove worthwhile.
Your thoughts and feedback are always welcome by e-mail.