Better contracts, Episode 6: caution and courage in contract design
What you’ll get out of this episode
We will look at aspects of contract drafting and design that need caution, and aspects that really need to be challenged more. This will help those working on modernising contracts - whether you are a lawyer, designer or a client - to make better and bolder decisions. Most of my observations focus on B2B contracts, and I’m writing primarily for legal design amateurs: in-house lawyers, private practitioners and contract specialists who want to make a difference in their day-to-day work, where engaging a legal design professional is not realistic. Let’s face it, that’s most of the time.
Where to be cautious
Anyone taking a traditional contract and trying to turn into something clear, user-centric and productive, must balance innovation with risk. Trying new things carries consequences, both in terms of perception and real-life legal risk. This calls for both courage and discipline. Let’s look at where caution and discipline is really important.
1. Clarity or reduction?
I’m going to start with something mildly polemical. It goes to the distinction between clarity and simplicity. I’m going to add another distinction: reduction.
A contract design exercise (at its inception and in its granular execution) needs to contain conscious decisions as to whether the contract is being clarified, simplified, or reduced (or a combination of the three). I have seen many examples where an exercise in plain language actually results in lighter and essentially different legal terms. That’s not just clarification, that’s reduction - and that needs clear risk-based decisions.
Many “before and after” showcases I see on LinkedIn are actually exercises in reduction, not just plain language. I’m not saying that’s a bad thing - reducing that which is unnecessary or of little importance should very much be part of the contract redesign arsenal. But it needs to be honestly presented as such.
Let’s take an indemnity clause. We all know what a typical one looks like so let’s go straight to a real-life example of a “plain language” indemnity clause I saw in a B2B contract:
“The Seller shall indemnify the Customer against all liabilities arising from a claim that the Deliverables infringe the intellectual property rights of a third party.”
Nice and short, but there is a lot missing compared to a standard indemnity clause. So this is reduction, not just clarification, and it may or may not be the right thing. Here’s a better version:
“The Seller shall indemnify the Customer against all liabilities arising from a claim that the Deliverables infringe the intellectual property rights of a third party. In this clause: (i) “liabilities” include losses whether foreseeable or not, costs, attorney fees reasonably incurred and any such liabilities arising from third party claims; (ii) the obligation to indemnify includes indemnifying the Customer’s affiliates, personnel and agents, and (iii) the Seller will not be liable under the indemnity to the extent that the liability results from the Customer adding to or modifying the Deliverables.”
Compared to a typical indemnity clause, it is both clarified (reasonably plain for a B2B context) and simplified (through a restructuring of the narrative), but it is not reduced.
There is so much scope for improving contracts - especially moving away from conventional clause structures - without reducing the underlying legal clarity. In that sense, “boring innovation” has more of a place in day-to-day on-the-ground contract design than the exciting show pieces.
2. Language
Plain language as a way of increasing clarity and reducing cognitive load is the essential starting point. However, we are dealing with laws and legal relationships, so the contract must not only simplify and clarify (and avoid inadvertent reduction), but must actually improve how it performs its core function of defining responsibilities and managing risk.
A simple example: using “you” and “we/us” when defining the parties, which I see in most legal design examples. Personally I don’t like it because it’s a bit too cute. But there are also objective problems. It leads to awkward phrases like “you and we shall...” which reads poorly and reduces flow. More importantly, it puts clarity under unnecessary strain (“we” ambiguously referring to one party or both parties in some phrases?). It might be fine in a one-way conversation like a privacy policy, but most contracts are two-way conversations. If you really want to be informal in B2C or online terms of business, just use “you” and “[company name]”.
Some other favourites:
unnecessary wordstrings (“sell, convey, transfer and assign”) are mostly useless and even dangerous if they are self-contradictory. But watch out for cases where you need them because they actually convey different obligations or remedies (for example “liabilities” and “costs”);
“thereofs” and “thereins” have no place in a modern contract, but what about “hereby” (as in “hereby assigns” or “hereby licences”)? Personally I favour the simpler “assigns” or “grants a licence”. Removing the archaic sounding “hereby” does not create ambiguity in most contexts, but it’s worth making sure that it can’t be misinterpreted.
I’m a big fan of consistent use of contract language categories, for example in the use of “shall” vs “will”. We can argue about the risks and relevance (Ken will usually win on technical points) but for me it’s simpler than that: if you apply consistent rules, you will draft consistently, which helps you and the reader and the business. You can develop your own rules - or you can follow tried and tested ones.
With language, getting the balance right depends on context (the risks in the relationship, whether it’s B2B and B2C). It is also critical for buy-in - from inside your organisation and from the legal community at large. The important thing with contract design is to tighten language, not loosen it.
3. Icons and visuals
Visuals need to add clarity and reduce cognitive load. I’ve seen many examples where icons are added to make things appealing at first glance but they do very little to aid comprehension: they are not always self explanatory and take longer to process than a simple heading. Hey, I’ve been guilty of it myself ;)
The same goes for more complex visualisations: it may look good from a design perspective and as a showcase of design techniques, but the question is whether it adds to the user’s experience. If it takes effort to work out the meaning versus reading a simple sentence, the result is surely counterproductive. And that needs to be tested not against the original pile of sh*t but against a plain language version.
Take care when using very different visual techniques across the contract - each of which the user needs to get their head around. There is a fine balance between breaking up monotony, and excessive visual complexity. Outside of experiments and show pieces, in our daily struggles I believe less is more. One of the best examples of that is the Lemonade insurance policy - it’s a delight to read and not a visual in sight (yes, I quote this one all the time).
My point: contract design is not just about visuals, or even primarily about visuals (an obvious point to legal design pros). Language and structure are fundamentals that in my view come first - so much can be achieved with that, and it’s accessible to everyone.
Where to be brave
Let’s look at things that are not being challenged, or not challenged enough.
1. Clarity vs simplicity vs reduction
Let’s break down this chestnut again.
Contract design is not just about expressing the existing concepts in a clearer way. Clarification on its own often results in contracts that are significantly longer (on page count and often on word count). On its own, language clarity does nothing to challenge the dysfunctional balance between outcome and risk.
Contract redesign should be about simplifying the content and applying thoughtful reduction:
removing content that is there because of convention and history, but does not really add in any material way to the contract’s objectives;
breaking up conventional clause groupings, narratives and structures, to reduce cognitive load and drafting complexity;
restructuring the agreement to group content based on the reader’s needs, not the lawyer’s;
redressing the balance away from risk, towards outcomes. This means focussing on the relationship and deal velocity, being more relaxed about unlikely contingencies, and taking less aggressive positions on risk. In practice this should result in those parts of the contract that deal primarily with risk, being simplified or reduced, not just clarified.
Lawyers sometimes run from “simple” because it is equated with “simplistic”, while laws and legal processes are perceived as being inherently complex. The result - at least in contract design - is a tendency to major on “clarity”. Yet I would challenge anyone who claims that it is impossible to reduce complexity - in any sphere of human activity. Clarity on its own does not reduce complexity. But simplification and reduction does. The best examples of contract design don’t just clarify, they simplify and reduce.
2. Bad old habits
I often see old ways of doing things creeping back into modernised contracts. Conventions like “Agreement” and “Parties” as defined terms (lowercase “this agreement” and “the parties” is perfectly clear and needs no definition in most cases). Recitals, preambles and interpretation wording (most of it is unnecessary and should be ditched). Starting contracts with definitions (just don’t; integrate them inside the sections where the terms actually appear, or put longer lists of definitions in a separate schedule).
99% of B2B contracts I see follow unchanged narrative structures, which are lawyer-led, not business-led. These are all bad habits. I recently wrote about these habits, and how to break them, here.
3. Numbering
Clause numbering is the conventional way to structure and navigate a contract. But it creates the perception of something that is technical rather than user-friendly, and the resulting habit to build in lots of clause cross-references creates a lot of pain for anyone working with or reading the contract. 100% of B2B contracts I come across still contain conventional numbers and clause cross-references - as usual with plenty incorrect or out-of-date.
The best examples of legal design I’ve seen get rid of numbers altogether. This might be more challenging for a complex B2B contract but it’s not impossible. How do we do it?
A well structured agreement should be able to minimise cross-referencing and number hierarchies. Simple agreements like NDAs should eliminate cross-referencing and potentially even numbering altogether.
Modular agreements is a technique to (among other things) reduce cross-referencing by grouping clauses in a different way.
We can solve this once we think outside of conventional tools (Word) and how we use them. A while ago I worked on a design project that explores ways of navigating and structuring documents without numbering - I will post about that sometime soon. For now, take a look at this example implemented in Majoto:
Reproduced by permission of Majoto Lab Limited
In this example, we’re eliminating the risk of broken cross-references, since the link is direct to the relevant bit of content, not a clause number. It reads smoothly. And there’s a mouseover feature that lets you view the linked content without navigating to it. Nice.
4. Better disclosure
I believe that contracts should be transparent and provide clear information to the reader to be able to make the right decisions. This is what creates trust and builds relationships. Yet the old paradigm with contracts - both B2B and B2C - is to sell the upside and underplay or even hide risks and consequences. This adds to negotiation friction, erodes trust and creates a “cognitive bypass” effect which reduces people’s engagement with contracts.
The team at GreaterThanX are on the front lines of calling out and challenging this convention, with their “Better Disclosure” approach - which is all about fixing that cognitive dissonance and getting people to engage with contracts to make the right choices. I really recommend their work as essential reading and training especially to anyone working with B2C contracts.
5. Starting with Purpose
Any reworking of a contract should involve stepping back and asking the biggest question of all: WHY. Why are we doing the redrafting exercise? What is the purpose of the agreement? What are the core business objectives?
If you can define the purpose, you can then build an agreement map around the purpose. This lets you create a purpose-led agreement structure rather than following conventional drafting narrative. Now, everything you put in the contract can be related directly to the core purpose and objectives. The resulting agreement map is not only your skeleton contract, but can also be integrated into the final item and into the client delivery process to make internal alignment and negotiations easier and to help readers navigate and understand the contract. It’s also a way of building trust because the purpose should address both sides, not just yours.
Here is an example of a purpose mapping exercise (I tend to do this in live sessions using Miro) and an agreement map that can be built out from it (the example is a design pattern from my contract automation product Majoto):
Purpose-led agreement structure using the Infinity Canvas (c) Denis Potemkin 2020
Objectives-led agreement map implemented as a visual design pattern in Majoto (c) Majoto Lab Limited
I have been using this contract mapping approach to deliver both regular legal drafting work and contract design projects and it really works. I find it super exciting and will be writing more on this soon. My challenge to my readers: start with Purpose, always.
Final thoughts
To see how I turn these ideas into practice, check out and follow:
Majoto - everything I know and believe about contracts, wrapped up in tech.
R/evolution - a gallery of design/tech experiments and case studies.