Jusletter IT

Contracts lie at the heart of business deals and relationships. But do they capture the parties’ purpose in entering into their contract? The conventional view of lawyers focuses on drafting enforceable contracts that maximise their clients’ rights and minimise their risks. While these aspects are important, they are seldom the clients’ primary goals. Parties make contracts to reach common business goals and benefits, not to go to court and gain compensation for the other party’s failure. Framing contracts primarily as legal tools is not what clients need or deserve, and moreover not in «legalese».

By the disproportionate focus on constructing legally airtight contracts, lawyers may be doing their clients a disservice. It forces negotiators to focus on legal issues, disputes, and remedies – to the extent that they feel they are negotiating the wrong things.¹ While the contracts containing such defensive terms seek to provide safer deals, they often lead to lost opportunity, deteriorating relationships, and the erosion of value. Most of the time and money is being spent preparing for failure and disagreement, when the focus should be on succeeding together – the goal that this paper seeks to advance.

Surveys conducted by the International Association for Contract and Commercial Management (IACCM) reveal that contract negotiators around the world spend most of their time on terms relating to risk management and negative incentives. Year after year, the list of Top Negotiated Terms is topped by limitation of liability and indemnities.² At the same time, based on IACCM research,³ the following are the ten pitfalls of today’s contracting:

Table 1: Ten Pitfalls to Avoid in Contracting

1: Lack of clear scope and goals	6: Relationships lack flexibility, governance
2: Commercial team involved late	7: Contracts difficult to use or understand
3: Failure to engage stakeholders	8: Poor handover to implementation
4: Protracted negotiations	9: Limited use of contract technology
5: Negotiations focus on risk allocation	10: Weak post-award process governance

These pitfalls present major risks for the companies and their bottom line.⁴ As articulated by Stewart Macaulay, a huge gap exists between the contract as written («the paper deal») and the true agreement («the real deal»).⁵ Adding to the challenges is the fact that according to IACCM research, more than 9 out of 10 managers admit that they find contracts difficult to read or understand.⁶ While our paper focuses on commercial contracting, this is not just a problem of managers working with contracts between businesses, of course. Similar challenges are faced in consumer contracting, public procurement, employment contracts, and contracts between individuals, both online and offline. And in all these contexts, the felt need to produce traditional legal language in contracts (i.e., lawyers drafting contracts for other lawyers)⁷ diverts drafters' attention away from the needed integration among those who construct the deal, draft the contract, and those who must carry it out.⁸

The problems – caused to a great extent by the current misalignment of business and legal needs – have not gone unnoticed in research or in practice. Voices calling for a major shift have started to surface, noting how current contracting practices needlessly isolate lawyers, business negotiators, and the people in charge of contract implementation from one another.⁹ Overly legalistic contracts can alienate business people and prevent negotiators from participating fully in creating legal agreements that should be recording the purpose and expectations among the contracting parties.¹⁰ This phenomenon is eloquently captured in the title of a book chapter by Deepak Malhotra, «Great Deal, Terrible Contract».¹¹

If we want to avoid the current pitfalls and facilitate a better way of working, what can we do?

We can start to see contracts and their crafters differently. We can take the Proactive Law approach¹² and see contracts as business enablers. In addition to minimising problems and risk, the proactive approach focuses on enabling success and enhancing opportunities. Using the medical analogy, the proactive approach is not only focused on preventing problems or «legal ill-health». The goal is to promote «legal well-being»: embedding legal knowledge and skills in corporate culture, strategy and everyday actions to actively promote success, ensure desired outcomes, balance risk with reward, and prevent problems.¹³

Contracts contain vital business and relationship information, not just legal provisions: they contain information about roles, responsibilities, and requirements that need to be translated into action. They also contain crucial information about price, payment, product or service characteristics, functionalities, and so on, along with procedures, timelines and milestones that need to be followed. When contracts are seen as business enablers and communication tools it becomes obvious that contracts need to be designed, not just drafted.¹⁴ The view of contract crafters shifts from precise-legal-text-producing drafters to that of designers.

Organisational scholars have conducted empirical research into an area that is of particular interest here: contract design as a firm capability. When looking into employee skills – those of a firm’s managers, engineers and lawyers – with respect to contract design, they have divided contract terms into five categories: roles and responsibilities, decision and control rights, communication, contingency planning, and dispute resolution, arguing that all five draw on knowledge held by more than one group of employees. Their research shows that much of the knowledge regarding, for instance, how to design roles and responsibilities provisions in contracts resides in managers and engineers, rather than legal professionals, while the knowledge of lawyers is of greatest importance in the fields of contract terms related to dispute resolution and contingency planning.¹⁵ Managers and engineers are often in a better position to identify the most critical decisions from more peripheral ones around which concessions can be made, but this requires cross-professional interaction.¹⁶

Building on the importance of both managerial and legal involvement, how can we engage different professions in the contracting process and help them understand each other’s needs and expectations?

In our previous work, we have looked into what lawyers can learn from designers¹⁷ and software engineers¹⁸. We have explored promising new approaches to better contract and deal design, such as transactional art and visualised negotiations¹⁹ as well as contract visualisation²⁰. Prior research has revealed a number of ways to make contractual information more accessible and understandable, and several suggestions for avoiding current contracting pitfalls have been made.²¹ In this paper, we focus on visualisation. We argue that visualisation can help reduce the barriers to effective communications within an organisation, among and between business negotiators and lawyers, and between the contracting parties.

Contract visualisation is an emerging stream of research and practice. Its early applications can be divided to two broad categories: 1) visualisation in contracts and 2) visualisation about contracts.²² The former refers to inserting images, such as icons, flowcharts, matrices, or timelines in a contract, for instance to highlight, clarify and explain the content, ²³ while the latter refers to using images to provide guidance on how to read and use a contract or a set of standard terms and conditions.²⁴ It also includes the possibility of developing a graphical user interface to contracts based on associated text.²⁵ In this paper, we propose to add two more categories: 3) visualisation as contracts and 4) visualisation for contracts.

Visualisation as contracts posits that the visualisation of the agreement is the sole artifact of the agreement. There is no other or underlying text which overrides the visual representation. An early example of this new category is the «Comic Contract» introduced by de Rooy – representing the parties as characters engaged in a visual interaction or textual dialogue that simultaneously captures the agreement and its story. The comic may be enhanced with scenarios, diagrams or other visual devices.²⁶ The use of text for names, dialogue, complementary narratives, numbers and symbols is not excluded, but only to support the visual format. This goes beyond the idea that the visualisation only serves to enhance the understanding of the contract and is not intended to replace its text.²⁷

Apart from leveraging all the advantages of visualisation (such as understandability, memorising, and experience of the contract)²⁸ and of stories²⁹, it is a format that allows the contract to be presented contextually, i.e. a situational and temporal backdrop, and for the tone or «feeling» (friendly, courteous, formal) of the relationship to be represented. There are other advantages: for example, it allows the contract to be presented in the first and second person, enhancing the relevance, understanding and moral commitment of the parties to agreement. It also invites the benefits of the agreement being presented as a story, and as a sequence of questions and answers, which supports the readability and relevance of the «answer» in the context of the «question».

It is submitted that this category of visualisation as contracts would be relevant to contracts where at least one of the parties is not contractually literate or suffers from a reading disability. Early applications could be envisaged, for example, for employment agreements with illiterate or semi-literate people. Other applications could include leases, utility contracts or medical consents³⁰.

The concept of a comic as a contract is not without its challenges.³¹ Designing and drawing such contracts would require a trans-disciplinary effort between the clients, the lawyers, a scriptwriter and illustrator, with obvious cognitive effort and cost implications. There are also views that pictures may be overly ambiguous,³² that the understanding of pictures may be too subjective, or that the format may not meet the demands of more complex agreements.

With this category we refer to visualisations that support parties in designing deals and negotiating and making contracts. This category includes visual negotiation tools, such as visual templates for discussion, visual negotiation maps³³ and visual previews of contract terms³⁴.

An example of this category is the visual interface for online deal-making as introduced by Plewe³⁵. Informed by negotiation theory it is a generic interface focusing on pre-negotiation, negotiation and contracting within one system, thereby bridging the gap between the different mental models for deal-making and creating the legal representation of an agreement. A prototype consisting of various modules based on the visual metaphor of a marketplace is presented allowing for simple interactions such as drag and drop leading to a contractual document.

The system offers several advantages, for example, in the pre-negotiation phase parties may define invisibly to the adjacent side their goals and preferences (in a hierarchical form) either in private or to be shared with supporting negotiators and other partners. The interface directs explicitly the attention for the scope of the potential deal without prematurely limiting it on perhaps irrelevant terms and risks. It also allows articulating speculations and hypotheses about the other side’s goals, preferences and resources and to develop adequate strategies.³⁶

A generic platform supporting various forms of negotiations and contracting enables parties to express and represent strategies and tactics and thereby contributes towards avoiding the pitfalls in contracting shown in Table 1.

The actual negotiation is supported by the visual metaphor of a marketplace. All visual elements provide the option to be disambiguated through additional information in textual form. We consider flexibility and «associativity» important criteria for a contracting tool and aim to support brainstorming and creative methodologies as applied to other design processes.³⁷

So called strategic interfaces³⁸ facilitate interactions within the visualisations and during the actual negotiation process. The platform facilitates the alternate dynamics of offer and counter-offer through highlighted buttons on the marketplace. Users may negotiate in real time or asynchronous, together on site or remotely. By interacting, commenting, and editing items on the marketplace they create and assemble the deal step by step. Individual parts can be agreed upon leading to the overall final agreement. Once all issues have been addressed, the participants may finalise the result as a visual contract.

Parallel developments exist in fields outside the law, for example in project management, network visualisation, and conceptual modelling in information systems research. While we share the view that these developments can provide useful methods that can be transferred to the legal and contractual domain,³⁹ they are beyond the scope of our current work.

This paper proposes deal design as a new concept under which different professions can collaborate to reduce the barriers to successful contract negotiation and communication. We illustrate how the parties can use contract visualisation for better deal design: not just visualisation in and about contracts, but also visualisation as and for contracts, the two new categories we bring to the discourse. Comic contracts and the visual platform for deal-making introduced in this paper hold great promise for overcoming current contracting pitfalls. They also offer a range of opportunities for future research. A new approach to deal design can narrow or even eliminate the current gap between the «real deal» and the «paper deal», ultimately turning contracts into user-friendly communication tools that reflect the true will of the parties and are implemented as intended.

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