“Will restricting changes to a contract template by use of a restrictive format help speed up the contract review process?”
I get this question a lot. The simple answer is NO.
People try to use so many different formats to deter a counterparty from changing a contract template. But none of them truly work. In fact, choosing the wrong, aka a restrictive, format will only delay the contract review process.
Both experienced and new contract experts are dealing with formatting frustrations on a regular basis. So what is the winning strategy when it comes to streamlining contracts?
The Battle of the Formats
Over the years, the Battle of the Formats is being fought on several fronts.
- PDF vs. Word
- Locked vs. Unlocked
- Paper vs. URL
The future contracts space is trending towards efficiency and technology. And future battlegrounds are set to take place in the realm of Word vs. Contract Lifecycle Management (CLM) Platform.
Why PDFs Are Losing
After designing and implementing several contract review processes for various types of companies, I’ve learned that sending a template in a locked or PDF format rarely benefits anyone. It usually just wastes time by adding unnecessary back and forth emails and messing up document formatting when we try to DIY a workaround solution. In addition, using a restrictive format sends a dismissive message to your counterparty and damages the relationship before it has even begun.
Plus, the reality is that if someone really wants to change a document, they can and they will. The document format is not going stop a good contract expert from getting the required third-party intellectual property indemnification clause. We will either request an unlocked version or just DIY it to save time and headache.
With so many advancements in technology and more tech-savvy contract experts, we’ve become more aware of DIY workarounds, such as:
- Converting PDFs to Word through Adobe Editor or a free online conversion program (which could put confidential information at risk).
- Copy/pasting the text into a new, unlocked document.
- Printing out the document and re-scanning it through a PDF scanner then converting that PDF to Word.
Of course, the ultimate workaround is to walk away from the deal. Do you really want to risk losing business because you chose the wrong format? Probably not.
How to Win
So what should you do if you want to reduce the frequency of contract negotiations, speed up the contract review process, and avoid losing business?
Stop focusing so much on the format. Formats are not static and will change over time. Instead, focus more on: 1) the content of the template; and 2) the quality of the contract review process. If you have a quality template and a quality process, then the format will be irrelevant.
1. Quality of Template
The better your contract template is from the start, the less it will be changed. Your underlying assumption should be that the counterparty will request some level of changes to your template. Rather than targeting zero changes (which, unless you’re Apple is essentially unattainable), a more realistic target would be to achieve a significant reduction of major changes.
One thing you can do is prepare contract templates to address the most common use cases. For example, a long-form Master Services Agreement for larger companies, and a short-form Master Services Agreement for smaller companies and startups.
A high-quality contract template is one that:
- Is not egregiously one-sided
- Takes industry standards into consideration
- Focuses on the organization’s priorities
- Is drafted clearly and concisely
- Is customized to the specific product/service offerings as well as the target audience
2. Quality of Process
The better your contract review process is, the more adept it will be at addressing changes to the contract template. Put best practices in place that you hope will reduce the frequency of contract negotiations (such as terms posted on a URL), but be more than prepared to handle requests to redline contracts.
Consider having different processes for different customer spend levels or different contract types. If your company uses a CLM, you can design different workflows based on contract type or contract value. For example, the process for reviewing non-disclosure agreements is usually simpler than other, more complex contracts.
A high-quality contract review process is one that:
- Incorporates stakeholders from the start
- Integrates systems where possible
- Everyone is required to follow
- Provides an exceptions process for contract negotiations (because they are inevitable)
Other factors to keep in mind when developing a quality contract review process:
- Bargaining power of the sender
- Bargaining power of the receiver
- Complexity of terms
- Technical sophistication of the parties
- Time urgency
- Likelihood to be negotiated
There are no shortcuts to streamlining contracts. To overcome The Battle of the Formats, sidestep it altogether by focusing, instead, on achieving a quality contract template and a quality contract review process.
Author: Nada Alnajafi
If your SaaS system is going to be tested in a proof of concept (POC), be sure to put an agreement in place. The POC agreement would ideally restrict access to the SaaS in a test environment, disclaim any warranties and indemnities and require your customer to ensure that no confidential or personal data is processed while in the POC mode. To learn more and join in the discussion, check out my LinkedIn post.