I’ve done a lot of circles around the sun. And I have written and reviewed a lot of contracts. If you put those together you get… an old, cranky guy. Well, an old, cranky guy with a lot of experience dealing with contracts. And the biggest lesson I have learned over these many years is that the most important language found in any contract is typically lurking in the back, branded with the incredibly deceptive title of “boilerplate.” In my head, I imagine that the first lawyer who labeled these clauses as boilerplate was trying hard to get the lawyer on the other side to simply skim the papyrus and not spend much time parsing out the provisions. Somehow, someway, that’s what happened. Plagues descended and the rest, as they say, is history.
Okay. Maybe that’s not exactly how things happened. But, there is no denying that many lawyers do, in fact, simply skim the boilerplate sections in a contract and, instead, focus their efforts on “more important” clauses. While every clause in a contract is important, I happen to believe that the most important clauses are indeed the boilerplate. Why? Because boilerplate is where the term, indemnities, limitation of liability, warranties, disclaimers, notice requirements, force majeure, dispute resolution, assignment rights, subcontracting rights, compliance with laws provisions, and a host of other incredibly important contract language resides. While many lawyers do hope you simply skim it and move on, that is the worst thing you can do for your client. Instead, think of boilerplate as a huge buffet of gluten-free, low-carb legal issues begging you to dig in–and it’s all you can eat!
I understand that time is short for most lawyers, so I am not going to delve into a detailed list of all the different types of boilerplate clauses. Let’s just agree that there are a lot. Instead, here is my guide to the best way to quickly review these sections:
Man, I hated to lead with that but it’s true. You need to find some time to read every clause in the contract, especially the boilerplate clauses. I know it’s hard. For some reason, the boilerplate sections look like a one million-word run-on sentence (and whoever thought that ALLCAPS makes things easier to read should be drug outside behind the shed and smacked with a truncheon…). My approach is threefold: 1) skim the contract first and note generally what’s going on, where things are, and what looks like it will take time to work through; 2) print out a copy of the definitions and then go back through a second time and (mentally) plug those in where referenced. Does this change your view on anything? Do the definitions need work? Note the clauses that you want to focus on; and 3) work the contract, make your redlines, add your comments, and do the things you would normally do when reviewing a contract. This 1-2-3 approach will help you understand the contract and zero in on the things that matter.
First things first. Do I have the right parties signing the contract? Do I have the right corporate names, addresses, etc? It may seem like a small thing but if there is litigation and you find out that the entity that signed the contract is not the entity you thought you were dealing with, well let’s just say that is not a great day to be the lawyer who papered the deal. How does the assignment provision read? Can the parties assign the contract upon a merger or sale? Does the other party need to consent (and is that power limited with an obligation to not unreasonably object or delay)? Are subcontractors permitted or not – and does that work for your side?
Where’s the escape hatch?
I like to start with the goal of “how do we get out of this contract if it sucks?” That philosophy has served me well. So, find the term and termination provisions. Do they work for your business? Are they clear so there is no room for debate as to how and when the contract can or will end? Do you need anything from the other party after the contract ends and is that provided for in the contract? Basically, I am looking for a reasonable ability to get out of the deal. I am also watchful for auto-rollover provisions– they can take advantage of the general laziness of most businesses in failing to monitor their contracts–locking the company up contractually for longer than it desires.
Is there balance?
Boilerplate clauses do not always need to perfectly mirror each other when it comes to the rights and obligations of the parties, but there should be some level of balance and mutuality in keys provisions. Is risk allocated fairly? For example, the limitation of liability should cover both parties. Same for confidentiality, assignment rights, and so on. There are limited reasons why the contract should be one-sided, unless you simply do not have the commercial leverage needed to change it. And I always give extra focus to the indemnity provisions. I believe these should be, for the most part, mutual, i.e., if a party does something that gets the other party sued by a third party, then they should step up to an indemnity. I know not everyone agrees with that, and that’s okay. In the end, whether or not balance in the contract is necessary really depends on the situation. My tip: if you want to get contracts done faster, start with a balanced agreement.
What happens if a fight breaks out?
Yes, everyone is excited to get the deal done and start making money, but part of your job as counsel is to look ahead and consider what happens if things go sour and the knives come out. Where are disputes fought? Are you okay with the forum and choice of law? Does the prevailing party in a dispute get their attorneys’ fee? Is there an arbitration clause and, if so, is it detailed enough so you are getting the benefits of arbitration? Is there a dispute escalation provision and does it make sense (or does it give one side the ability to stall and stall)? Are you waving a jury trial and does that make sense?
You’re asking me about hyperlinks?
As you read through the contract watch out for hyperlinks. These are timebombs, pulling in by reference entirely different agreements and terms. Unfortunately, you need to click on the hyperlinks and read what is being incorporated–and it will likely add dozens of pages to the agreement. Pay close attention to any language that says the party proposing the hyperlinks can change the content found at those hyperlinks at any time at their sole discretion. That should send shivers up your spine and you’ll want to fix that.
What happens when bad stuff happens in the world?
This is a long-winded way of saying, how does the force majeure clause work, and is it fair to both parties? Is it limited to certain types of events or can literally anything beyond the reasonable control of a party become a force majeure event? It matters. See Covid 2020-2022. I am generally a fan of a well-written force majeure clause because things happen in business that should excuse performance. My caveat here is that there should be language stating if the force majeure event goes on past a certain time then the other party should be able to terminate and walk away.
What are the key dates?
Most contracts have lots of dates for when things will happen, need to happen, could happen, and so on. Do the dates work for the business? Is how you count the dates clear? Get out a calendar and walk through the dates and make sure!
Is everything clear?
Lawyers can suck at writing, especially when it comes to contract drafting (like a billion “anti-Hemingways” with laptops). Regardless, is the language reasonably clear so that people without a law degree can understand it? Think judge and jury. Or those poor people at the company who will have to interpret what you wrote or agreed to long after you have left the scene of the crime. Would examples help? Charts? Ultimately, you want everyone reading the contract to be able to understand what is supposed to happen – especially when it comes to the boilerplate.
Is the vendor standing behind their product?
When it comes to warranties, is the company selling you something standing behind the product or not? If not, why not? If yes, is it sufficient for what your company needs if things go wrong? Does the remedy work? It’s okay to disclaim things, but not everything. Parse out each line in the warranties and disclaimers and see if they make sense for the deal. Also, if a party has made any promises, those need to be in the agreement. If it’s not in the agreement then it is difficult to prove that it exists.
Do I have a checklist?
No matter how smart and experienced you are, your contract review will go faster and be more complete if you create and use a checklist to make sure you are looking for all of the things that matter most to you and the client. You can even make sample clauses part of the checklist so you have on hand the language you will use to redline key provisions. If you don’t have one, now is the time to get one together.
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So, that’s all I have for today and I am way past my world limit (sorry!). I suspect that many of you have your own items you would add to this list. That’s great! Do that! I have no monopoly on this stuff. I just know what has worked for me and I appreciate the opportunity to share my thoughts with the Contract Nerds community. Next time you get a contract, go straight to the back and dig in. Boilerplate is a big plate of goodness!