Tough Times for Tom

Tom felt like his law firm was driving him crazy. Despite his attempts to make everyone happy, nobody was, including him.

His supervisor kept tearing up Tom’s contracts with a red pen to highlight all his stupid mistakes. So, Tom tried to please his supervisor by slowing down and being more thorough.

But, his practice head kept warning him that he was spending too much time on his drafting and that this was causing the firm to lose money from write-offs. So, Tom tried to please his practice head by speeding things up.

But then, he got the red pen again. And then, he got the lectures about write-offs again. And now … you got the picture.

If you find yourself in a similar drafting trap, how can you escape it and make everyone happy? Read on to find out.

Thoroughness: Says who?

If Tom wants to be thorough AND fast in his contract drafting, he first needs to identify the important perspectives on thoroughness.

As a young associate, he has to please his supervisor, so his supervisor’s perspective is crucial.

But, at the end of the day, his firm can’t keep the lights on unless the clients happily pay their bills, so the client’s perspective is also essential.

Supervisor Thoroughness: Your firm checklist

When I was a young associate, I really struggled with being thorough in my contracts, because I simply lacked the experience to have a global view of the contracts. If you suffer from the same lack of experience, you can best solve this problem by working with contract checklists.

In some firms, practice groups already have checklists for common contracts. These checklists should be explaining all the of the key sections and provisions, including common issues to focus on. (If you’ve never seen a checklist before, here is a useful explanation about them: https://www.upcounsel.com/contract-checklist.)

But, if Tom doesn’t find have a checklist in his office, he can make his own. Better yet, he can have Chat Gpt make him a checklist. (I’ll explain how to do this and give you a sample later on.)

Client Thoroughness: Your client checklist

Since Tom knows that every transaction is different, he should also create a second checklist that focuses on the key aspects of the client’s transaction. When he makes this list, he should try to identify the key aspects from the perspective of his client. For example:

Based on the term sheet, what does Tom need to put in the contract to achieve his client’s goals?
What has the client been focusing on in their calls, emails, and meetings with Tom’s team? Where and how should Tom address his client’s focus in the contract?
What is his client’s checklist? (Yes, you read that right. Your client might have their own checklist. So, ask them for it.)

Even if Tom’s client doesn’t have a list, they probably have a list of “Danger Zones”. These are frustrating legal issues that they’ve experienced in past deals. For example, here is a sample list of Danger Zones from the awesome in-house blog by Sterling Miller called Ten Things You Need to Know as In-house Counsel.

“Most Favored Nations clause: a MFN basically requires a party to offer the same services, products, prices, or whatever on the same terms and conditions they offer it to any other party or category of parties. Watch out for anyone trying to impose such a requirement on your company or, if your offering one, that the company is truly prepared to give it and understands the repercussions. At one company I worked for, our delegations of authority required that the CEO of the company had to approve accepting or giving an MFN. That solved a lot of problems.

Exclusivity: Does the contract require exclusivity on the part of one party/both parties? Is the company truly prepared to do that? Is there any whiff of competition law problems with exclusivity (same for MFNs)? Bells should go off if you see exclusivity requirements in a contract.

Liquidated damages: I always paused whenever I saw a liquidated damages provision in a contract I was reviewing. These clauses provided for a set amount of damages for breach (or the agreement or some specific term). I would agree to them only in rare circumstances.” (Blog Post: “How to read a contract)

By asking for the client’s list of zones, not only might Tom get a list of key issues that are high priority for the client, but at the very least, he can demonstrate to the client his desire to learn about and focus on their priorities - both business and legal.

Checklists: A Chat Gpt Shortcut

If Tom can't find any useful checklists, he can use Chat Gpt to give him a "barebones" list of things to focus on in his contract. (He will need to put meat on the bones by filling in the gaps and identifying specific provisions).

For example, I asked Chat Gpt to describe what is needed for a thoroughly drafted M&A contract from the following perspectives: (i) an M&A lawyer, (ii) a client, and (iii) a litigator. You can see the results below:

Introduction and Definitions:

Parties involved
Definitions of key terms used throughout the agreement

Transaction Structure:

Description of the type of transaction (e.g., asset purchase, stock purchase)
Treatment of liabilities and assets

Purchase Price:

Total consideration
Allocation of purchase price among assets
Adjustment mechanisms (earn-outs, escrows, holdbacks)

Representations and Warranties:

Statements about the condition, legality, and other aspects of the business being sold
Carve-outs or qualifiers to limit the scope of representations

Covenants:

Agreements to take or refrain from certain actions before or after closing
Conduct of business between signing and closing

Conditions Precedent:

Events or actions that must occur before the closing can take place
Common conditions include regulatory approvals, third-party consents, and financing

Indemnification:

Mechanisms for compensating the buyer for losses arising from breaches of representations, warranties, or covenants
Limitations on indemnification, such as caps, deductibles, and baskets

Closing and Post-Closing:

Details on the closing process
Obligations of the parties post-closing

Termination:

Conditions under which the parties can terminate the agreement
Consequences of termination, including break-up fees

Governing Law and Jurisdiction:

Designation of the governing law
Specification of the jurisdiction for dispute resolution

Confidentiality and Non-Compete:

Obligations regarding the confidentiality of information
Restrictions on the seller's ability to compete with the buyer post-closing

Employee and Benefits Matters:

Treatment of employees during and after the transaction
Handling of employee benefits and pensions

Insurance:

Representation regarding the status of insurance coverage
Requirements for maintaining certain types of insurance post-closing

Notices:

Procedures for giving notices under the agreement
Designation of individuals authorized to receive notices

Dispute Resolution:

Mechanisms for resolving disputes, including arbitration or litigation provisions
Designation of the forum and governing law for dispute resolution

Miscellaneous Provisions:

Entire agreement clause
Amendments and waivers
Successors and assigns
Expenses and fees

Last Step: Checklist Management

Once Tom has his checklists, he should treat them as living, growing documents.

In other words, for his firm checklist, he wants to keep improving it by inserting notes and comments based on the feedback he is getting from his supervisors. And, for his client checklist, he wants to make sure that he is staying up to date in the deal by making modifications based on the new communications of his client.

Learn More

If you are looking to get more insights on this global view of contract drafting, check out Working with Contracts: What Law School Doesn’t Teach You by Charles M. Fox. In this book, you get both a comprehensive view of common drafting issues plus a practical approach for managing them.

Also, if you want help with speeding up your drafting of contract provisions, join us for our next course on Effective Contract Drafting.

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Drafting Checklists: A step towards contract sanity