The Data and Metadata of Contracts

Metadata is data that provides information about other data. The contract that you issue to a potential business partner or opposing party in a transaction says a great deal more than the words it contains. It conveys information about you, too.

Recently a client (I’ll call him “Tom”) asked me to “give a quick once-over” to a contract prepared for Tom by an attorney in another firm. We both anticipated that the document was substantively fine, and that the review would be a cursory check. In this case, however, only a few pages into my review I texted Tom and warned “Don’t send this out until we have talked.”

A bit of background:

Tom is a true entrepreneur. He’s breaking new ground with a disruptive service delivery model in a well-established marketplace, and the contract he wanted was the first of its kind.

The attorney who prepared it is an expert in the law of the established marketplace, and familiar with agreements of the traditional kind that Tom’s new disruptive business is replacing. He was NOT, however, an expert in Tom’s new business.

Being an expert in a certain area of law is quite different than being intimately familiar with a client’s business and its attendant workflow, operations, delivery and consumption of products and services, payment and appetite for risk.

Case in Point:

In this case, the contract was between Tom’s Customer and a service Provider. It was prepared at Tom’s request, as agent for his Customer, and was to be delivered to the Provider. The attorney preparing it never spoke with, and seemingly did not consider, Tom’s Customer; he didn’t understand the actual model, or that this was not “business as usual.”

The contract included a number of provisions that might be typically found in an “established marketplace” contract, but which in the new context would have been decidedly unfavorable to Tom’s Customer. Tom’s Customer had not bargained for or approved those provisions, or agreed to take on those obligations. Even worse, the language concerned qualifications and representations that Provider should have been making in favor of Tom’s Customer (as consumer of the Provider’s highly-regulated services), and not the other way around. As prepared, the language was so abstract, remote and generally inapplicable that it simply did not belong in the agreement at all. I told Tom that I had four serious concerns, only two of which were legal:

LEGAL CONCERNS

1. The qualifications language was inapplicable to Tom’s Customer, but would have been applicable to the Provider. As written, it left Tom’s Customer exposed, not because Tom’s Customer would be at risk of violating those provisions, but because Tom’s Customer would not be entitled to rely on the Provider‘s assurances as to its qualifications.

2. The language was abstract, remote and generally inapplicable. In the event of a problem with the agreement, each party would likely make claims under this confusing language simply because it was unclear. The result would be tremendous cost. Seizing on unclear and unnecessary language can provide a means of dragging out the litigation process, particularly by the party who has deeper pockets or a greater appetite for litigation time and expense.

PRACTICAL CONCERNS

1. If Tom presented this agreement to the Provider, a major player in the marketplace (as agent, on the Customer’s behalf), the Provider would assume that Tom didn’t know what he was doing, and would have no respect for Tom at the negotiating table.

2. If the contract embroiled Tom’s Customer in litigation over the meaning of unclear language, prevented Tom’s Customer from relying on the Provider’s qualifications, or prevented Tom from striking more favorable business terms for his Customer as the result of the Provider’s lack of respect for Tom, then Tom would suffer severe reputational damage.

Tom agreed. More importantly, Tom agreed to hold off on delivering the agreement until we could address the legal and practical concerns and give Tom’s Customer an opportunity to review and approve the proposed terms. By understanding Tom’s business and positional challenges, and not merely the law, I was able to help Tom keep from making a bad impression on both the Provider and his Customer.

Take Away:

Attorneys sometimes get bogged down in the “law,” or in “the way we always do it,” and may lose sight of the business reason for preparing a document in the first place. The agreement that you present to a potential business partner or opposing party communicates more than the content of the agreement itself. It signals to the recipient your degree of preparedness, thoughtfulness and professionalism. It is critical that the attorney working with you on any agreement understands the context and your business objectives, as well as the law.

Whether you work with me or with someone else, make sure that your attorney understands what you actually do and prepares the agreement that aligns with the way your business really operates. You will be glad you did.