Agile contracts

It is hard for anyone working in an information technology company to escape jargon. IT folks will outsmart lawyers in inventing and using jargon any day. One term that has been around for a while but has gained traction recently is “agile.”

Agile contracts

It is hard for anyone working in an information technology company to escape jargon. IT folks will outsmart lawyers in inventing and using jargon any day. One term that has been around for a while but has gained traction recently is “agile.” Agile started as a software development method, but it has now become an overall way companies operate. Many companies have adopted or are aspiring to become enterprise-wide agile.

While the agile approach has not easily translated in the legal realm, it does hold lessons that lawyers could learn in more effectively doing what they do best: negotiate contracts.

The agile manifesto proclaims that it values “customer collaboration over contract negotiation.” However, perhaps to not annoy lawyers, the manifesto clarifies that while there is value in contract negotiation, it values customer collaboration more. There is also an interesting observation in the history section of the agile manifesto, which would resonate with in-house lawyers in many organizations based on how they are perceived, namely, “. . . agile approaches scare corporate bureaucrats — at least those that are happy pushing process for process’ sake . . .”

One of the principles of the agile manifesto is “to deliver the working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale.” As  contract lawyers, if our goal is to review and negotiate a contract, we need to work toward the closure of contracts much faster. To do this, we need to first have information such as the number of documents reviewed by the team and the time taken to review the document. We then need to document the key learnings to develop best practices. One Indian business leader, when asked about why people stay at work late, said that they are either inefficient or overworked. By tracking the contract review process in a detailed and transparent manner, the legal team can demonstrate to management whether they are inefficient or short-staffed. Such detail tracking will also help the legal team identify areas where technology can be used more effectively or if there is any scope for automation.

Some on the legal team may feel that detail tracking of the review process is intrusive or micro-management. So, it is important for leaders to clearly explain the advantages of this agile practice and how it can personally benefit them. Another principle of the agile manifesto is to “build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.”

The contract review process can also be faster when the legal teams and business teams work together instead of in silos. This should not be contested by any business person, especially those in IT, as it is another principle of the agile approach to avoid silos.

Once the contract review is complete and the goal is closing the deal, the next important stage is contract negotiation. While the contract review process is internal, contract negotiation requires collaboration with external parties, customers and their third-party advisors, such as a law firm or a consulting firm providing procurement advisory services.

International Association of Contract and Commercial Management reports have repeatedly revealed that the top issues negotiated by lawyers include limitations of liability, indemnities, warranties and intellectual property rights. However, determining the main purpose of the contract does not even appear in the top 10 items discussed during these negotiations. If working software is the primary measure of progress in the agile method, the contract lawyers’ primary focus should be to ensure the software is working as intended.

A contract lawyer’s focus is to protect the client’s interests. Every lawyer will cite a win-win solution at some stage during contract negotiations. With agile contracting, such a solution is not only possible but probable. The contract negotiations teams from both the buyer and seller can work in a collaborative manner by adopting agile practices to truly achieve that win-win. The seller representatives should demonstrate their capabilities and assume some risk in delivery of services and the buyer side needs to be “reasonable” in not transferring their business risk to the seller. For instance, if the buyer insists on unlimited liability or an excessive liability cap from the seller, it may look good from the buyer’s perspective, but would that really help the buyer achieve the purpose of the contract? To draw an analogy, it is like stating that we do not care about what happens to the contract goals because we are insured. The negotiations should result in a contract that stipulates a process where the contract goals are achieved seamlessly and risks are mitigated should those goals fail.

To achieve this, the most efficient and effective method of communicating is through in-person meetings. Face-to-face communication also happens to be an agile principle, one that has since become dated for software development as teams no longer need to be in one location. But the good, old agile principle is still the most effective way for contracts to
be negotiated.

Some may consider agile principles as old wine in a new bottle, but it is important for the legal community to speak the language the business community understands and adopt agile practices. By doing so, lawyers can build better credibility with their internal or external clients and develop a new agile manifesto that values contract negotiations as equally important and not as a bottleneck in achieving the contract goals.

Nagendra Krishnamurthy is the head of legal and corporate secretary of Tata Consultancy Services Canada Inc.

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