January 10 by Alex Hamilton

I come from the premise that contracting is broken. Generally, business-to-business contracts take too long to finalize, the discussions focus on the wrong issues, and the output is suboptimal in supporting commercial relationships.

There are numerous reasons for this, but the outcome is that business users are too often left sitting on the sidelines watching a rote dance that has become mechanical and leaks value. Unreasonable positions are proposed in standard terms and negotiations follow a predictable back-and-forth influenced more by the size of the respective parties than what is best to create value for them. As the annual IACCM survey shows every year, the negotiations are on liability provisions rather than what actually goes wrong: not being clear about who is doing what.

And yet we manage to do $20 trillion of business between companies each year. I remain a great optimist about the future of contracting. But I am skeptical of many of the “silver bullet” fixes that are suggested with the latest fashionable technology (such as smart contracts). The difficulties with contracting are numerous and a “wicked problem.” Progress will require improvements on many fronts, including a “silver shotgun shell” rather than a silver bullet if you will.

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The future of contracting needs to be objective-led rather than driven by a standard position. Terms need to be built for users, rather than lawyers. They also must be shorter, clearer, and more reasonable.

 

We need to inform negotiations with better data about what is market and better tools to price and weigh risks. And, we need to move from document-centric to data-centric contracts, with the ability to extract key details without human intervention before we can even start to really make progress with smart contracts.

All of this is possible, but the industry has a few bad habits to unlearn along the way.

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