Posted on March 8, 2018
How You Can Quickly Up Your Contract Game With This One Simple Tactic
Lauri Donahue, LawGeex’s Director of Legal Content, on a game-changing tool that streamlines contract review
I remember the first time I was asked to review a contract. It was more than 30 years ago, and I was fresh out of law school, working in my first legal job. Like most law students — then and now — I’d studied contract law but hadn’t ever been walked through a complete, modern contract.
“What should I look for?” I asked.
“Just check the warranties and indemnification clauses,” I was told.
And so I did.
Of course, I had no idea what a warranty or indemnification clause should look like — what was standard or what would commonly be negotiated.
Over three decades of legal practice, I’ve reviewed thousands of contracts. I now know what’s common and what’s rare. I know what kinds of clauses and terms create or reduce risk and hurt or benefit each party, and I know what common fallback positions are.
That’s probably how most lawyers learn to review contracts — by experience. And it’s woefully slow and haphazard.
There’s a better way, but I didn’t find out about it until I’d been in practice for about 25 years.
It’s called a playbook.
What’s a Playbook?
In the world of sports, a playbook is a binder (or computer tablet) containing a team’s strategies and plays.
Playbooks have come to be used in other realms, including politics, law, and business, to standardize an organization’s response to problems and opportunities.
Playbooks can be used for any legal process, but I want to focus on contract review.
A Crib Sheet for Dealmakers
Twenty years ago, I created a sort of mini-playbook for the “grant of rights” clause in intellectual property licenses. I grandly called it a “crib sheet for dealmakers.” I listed the various rights associated with different types of IP and discussed possible dimensions of a license in terms of exclusivity, term, geography, and scope.
But I didn’t see a full-fledged playbook until about five years ago. Lynn, a law firm colleague, showed me the chart she’d created for a client that did high-value, heavily negotiated deals on a regular basis. The company had developed standard positions on each major issue and a series of fallback positions.
When Lynn was on a marathon negotiating call on behalf of this client, by referring to this chart she could remind herself what the client would agree to, and what she’d need to escalate to the client.
I thought this was a nifty idea. When you’ve got dozens of clients, it can be hard to remember what their positions are on every contract issue. For example, Acme Co. might insist on a New York choice of law clause, whereas Beta Corp. doesn’t care as long as US law is specified.
When I reviewed and redlined contracts for these clients, I didn’t need to ask “is this OK?” if the answer was already in the playbook.
So I started creating similar playbooks for some of my own clients.
When I reviewed and redlined contracts for these clients, I didn’t need to ask “is this OK?” if the answer was already in the playbook. And I could make many changes without needing to consult with the client. This saved my time and the client’s money, and it got deals done faster.
Why create a Playbook?
Besides saving money and closing deals faster, other reasons to create a playbook include:
- training new lawyers (like me, 30 years ago)
- training in-house lawyers who are new to the company or newly assigned to a particular client
- providing a shared reference for legal, sales, business development, procurement, contract management, and other stakeholders involved in the contract process
- empowering non-lawyers (for example, salespeople) to sign contracts based on lawyer-approved parameters
- reducing a law firm’s risk of committing malpractice by overlooking something important
What Does a Contract Review Playbook Look Like?
Contract review playbooks can be simple or detailed. For example, a simple playbook might have charts like this one
|Choice of Law||California||Delaware||Outside US||Legal|
|Duration of NDA||3 years||5 years||indefinite||GC|
A detailed playbook can also explain WHY something is required or unacceptable, to aid in negotiation with the other party.
Why Aren’t Playbooks More Common?
Playbooks are so useful that it’s surprising that they’re not more widely used. According to a survey by Apttus, only 29% of law departments use a legal playbook. 23% use playbooks that specifically deal with contracts. 54% of those playbooks are in hard copies located in binders.
(These figures may be aspirational — only about 10% of the clients LawGeex talks to actually use playbooks.)
Obviously, a hard-copy playbook isn’t optimal, to say the least. Those hard copies have to be physically distributed throughout an organization, and new copies (or replacement pages) printed and distributed every time there’s an update. And there’s no way to do an automated search without access to the soft-copy original.
One reason that lawyers don’t create playbooks is that they’ve never heard of the concept. Another reason is that they’re “too busy.” This is a perfect example of being “penny wise and pound foolish” when it comes to time.
Setting up a playbook isn’t that big an investment of time, and it saves hours and reduces stress (“what have I forgotten to check?”) whenever it’s used — in addition to having all the other benefits listed above.
LawGeex incorporated the playbook concept into its automated contract review platform (which reviews standard contracts from NDAs to SaaS agreements).
LawGeex has lists of dozens of “parent” and “child” clauses. For example, in an NDA, “Term of Confidentiality” is a parent clause. “Indefinite Term” is one of several child clauses under that parent. A user can determine what parent and child clauses matter to a specific client and ignore everything else.
Each clause that matters can then be marked “required” or “unacceptable.” Acceptance criteria can also be added. For example, a Choice of Law clause might be “required,” and the acceptance criterion might be “Choice of Law must be New York or California.”
Because LawGeex has already done the heavy lifting by identifying a wide range of common contract clauses, variations, and options, we can set up a playbook for a client in an hour or two.
Because LawGeex is cloud-based, it’s accessible to everyone throughout a legal department or law firm, and updates are promulgated automatically.
The report in the LawGeex Action Center comes pre-populated with sample clauses and feedback. Clients can customize the feedback and add their own model clauses and instructions on fallbacks and escalation procedures.
Robots and Lawyers
Once the playbook has been set up, the robot takes over.
The LawGeex Artificial Intelligence (AI) engine has been trained with thousands of contracts to recognize clauses and the terms they contain. Once it’s put a clause or term in the right “bucket,” it then applies the client’s playbook and shows a green “thumbs up” or red “thumbs down.”
The result is reviewed by a team of real-live lawyers (including me) to make sure the AI got it right — and to train it when it didn’t.
The AI isn’t perfect yet — but then, neither are lawyers.
Already, the LawGeex AI can review an NDA with 94% accuracy (as compared to 85% on average for an experienced lawyer), as shown in a recent study. The study pitted 20 US lawyers against the LawGeex AI. Both the lawyer and the AI reviewed five NDAs containing a total of 153 paragraphs of legal tex.
It took the lawyers an average of 92 minutes to do all five NDAs.
It took the AI 26 seconds.
Thirty years ago, before the World Wide Web even existed (if you can imagine that), I was one of the co-founders of the Harvard Journal of Law & Technology. Back then, we were thinking about things like mining rights on the asteroids and the legal rights of clones.
But I never imagined I’d end up training a robot to do what I wished I’d learned to do in law school.
Lauri Donahue, is Director of Legal Content for LawGeex. She has more than 30 years of experience with contract review, including as in-house counsel for PG&E, HP, Intuit, and Atari.