In-house lawyers must adjust their roles to support this new manner of contracting, says Mark Le Blanc
Every law student learns that a contract is a legally binding commitment between two parties where there is an offer and an acceptance. Those can be written commitments or, in some instances, oral. For most of us, they are very detailed written documents covering the key issues between the parties, some standard terms and conditions, and distributing risk as appropriate.
In the online transactional world agreements are still this. But, increasingly they are becoming ‘click-through’ agreements where the buyer merely accepts the standardized and unnegotiable terms of the seller.
We are increasingly seeing contracts not even structured in the form of documents, but simply commitments to abide by a series of policies and standards of the vendor in return for the goods or services, especially in the tech space.
As in-house counsel for a procuring organization, we are reviewing and advising on the risks and obligations in these contracts. We are not negotiating the terms. These policies and standards are put in place by the vendor to both manage risk and increase speed of signing. Risk is generally borne in a very limited fashion by the vendor, and mostly by the buyer. I am not suggesting that every contract will become an online transaction and can easily be standardized. Certainly complex corporate acquisitions or financings and more complex and unique deals will remain carefully negotiated agreements.
What does this mean for in-house counsel?
For most organizations, either on the buyer or seller side, much of what is offered or procured is to some extent a commodity: everything from enterprise systems and computers, even office leases or audit services. The standard terms and conditions and risks are generally well understood and, for all but the largest of organizations, not negotiable.
Our first key contract responsibility as in-house counsel is not so much to negotiate and revise language in these agreements, but to advise on key terms and conditions and on risk to the organization, especially where a key term or condition or risk is not acceptable. In some instances we simply may not be able to do business with certain vendors; for example, if a vendor stores all your data offshore, you may not be able to accept the storage of your organization’s data in a foreign jurisdiction. In that case you would need to seek another vendor, which is not always an easy thing to explain to your internal client (i.e., your employer).
If you are in-house for a vendor, your job is to balance the reasonableness of your standard terms and conditions while managing and limiting risk to the organization. If you sell globally, this task becomes even more complicated when ensuring compliance with local laws in foreign jurisdictions.
Our second key contract responsibility is to have in place a process and system for tracking and reporting on contracts. The purpose is to ensure that our internal clients can easily manage and understand their contracts and receive reporting on them. I have addressed contract management systems in previous articles, and will not drill deeper here; but, it is the second arm of contracting skills for the modern in-house lawyer.
At the end of the day, as in-house counsel our contracting role has shifted from a focus on negotiation of contract terms to advising on legal and business risk and being responsible for contract management systems. We are still negotiating and we had always advised on risk. In terms of the contracts themselves, in this age of commoditization and focus on speed most of our time spent with contracts is focussed on assessing legal and business risk, and advising internal clients, not on negotiation of legal language. We are becoming more strategic and trusted advisors than simply a narrow legal advisor.
What does negotiation look like now, and what is next?
We are still negotiating terms and conditions on some agreements. For example, our content licence agreements still require substantial rights negotiations. But, this is really a business negotiation. Legally, we are moving from one standard clause to a default or secondary default clause. There is little drafting or negotiating legal language. They are not yet at the level of a click-through agreement, but they are very standardized and structured.
You can well imagine that in such an environment, artificial intelligence or some manner of software can be used to speed and ensure compliance in this process. I leave this as the launching point for another article, likely from someone more knowledgeable than I. We are not yet ready for “smart contracts,” but we are absolutely at the stage where the majority of our business contracts are click-through – and beyond. As modern in-house lawyers, we must adjust our role to support this manner of contracting.