Drafting contracts

Step 3: Collecting and stripping the model contracts and precedents

From the contract automation and model contracts working group, the project manager, explicitly supported by the general counsel, should collect the existing ‘model’ contracts, ‘templates’ and ‘standard form precedents’ (SFP’s) from amongst all in-house lawyers. This collection of models should include the sets of general terms and conditions used by the company’s businesses. If only a limited set of model contracts is selected, the best practice group should make sure that also any contracts of the same kind are collected. Further, individual contract clauses can be submitted. Depending on the type of contract (and the way they are used by the business) important negotiated agreements may prove to be helpful as well.

Once everyone’s ‘templates’ and ‘model contracts’ have been collected, they all need to be stripped: the various building blocks within each contract should be brought together in separate collection documents and be arranged subject-by-subject. Text formatting (e.g. font, alignment, line and paragraph spacing, automatic cross references) should be removed in order to improve the visual comparability of the collected clauses.

During this stage, the modular character of contracts becomes visible. You’re more or less building your clause library of boilerplates. Stripping the ‘model’ contracts and ‘standard form precedents’ could probably be done by only one or two persons (e.g. paralegals). One of them could be the anticipated contract drafter (who should otherwise supervise the contract stripping process).

You will see that the stripped clauses and defined terms (‘definitions’) may be classified as follows:

  1. Truly boilerplate: contract clauses and definitions appearing in many contracts, notably the miscellaneous provisions (i.e. applicable law, dispute resolution, notices, confidentiality, term and termination).
  2. business-specific boilerplates: several normally-unrelated contracts contain the same clauses (e.g. forecasting, ordering, pricing, VAT and payment term, product acceptance procedures, force majeure, regulatory compliance, warranties, limitation of liability). They may randomly appear in several contracts but usually in a different subset.
  3. there are relatively little business-specific, tailored clauses (e.g. sale, license, provision of services).
  4. only a few contracts are almost entirely composed of template-specifics (e.g. confidentiality agreements, powers of attorney, corporate resolutions).

It is probably most efficient to upgrade (and discuss) the contract clauses subject-by-subject (as opposed to contract-by-contract, as you might intuitively do). The arrangement and allocation over the collection documents should therefore reflect the above ‘classification’.

Thus reducing the entire work to manageable bits and pieces will greatly improve the efficiency and effectiveness of the decision-making process by the best practice group. For instance, if the first contract-to-upgrade would be a general purchase agreement, one would probably catch 80 percent of all disagreeable issues in one single document. The best practice group that faces too many issues, may then start compromising in order to achieve a result and find itself dispirited when a subsequent model contract is tabled.

Contract upgrading projects should be subdivided in small sub-projects and therefore be reduced to manageable sets of contract clauses. When starting with the general purchase agreement, it is recommended to subdivide and start with the miscellaneous, the quasi-miscellaneous (confidentiality, force majeure, ordering and forecasting) before proceeding to the articles with key obligations. So start with the clauses identified under 1. above and end withose under 4.