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Mark Grossman

One-Size-Fits-All Approach to Tech Contracts Will Fail

5 October 2000

Horribly written contracts for tech deals cross my desk every day. They are lawsuits waiting to happen.

When a lawyer writes a contract, he should be writing a document that tells a story about the deal, albeit with a tilt toward his client. Often, what I see isn't a tilt, it's illiteracy.

When I started practicing law about 18 years ago, I was exposed to what you might call "sophisticated" corporate deals. The documents I saw were well-written.

Then there's tech contracting.

Usually, the first draft of the contract comes from the seller of the tech services. These deals show the wisdom of the 20-minute-old dot-com driving the deal. (All that's missing are pimples on the documents.)

Throw in some rhetoric like, "We have to move this deal at 'Net speed,'" and "On the West Coast, they do these deals in a day," and what you have is a nuke looking to explode in a courtroom near you.

It's really a simple formula. Poorly written contracts lead to war.

When people are negotiating a deal, they have a natural tendency to assume that the team putting it together will be the team implementing it. I start from the opposite perspective.

I always assume that none of the players at the negotiating table will be involved after the parties sign the contract. Businesses are sold all the time and people get promoted.

When these things happen, it means that whoever knew what the contract "really" meant is gone. The written document has to stand on its own.

When the person across the table doesn't want to take the time to clarify a clause, he'll often say something like, "Come on, you and I know what it means. Just trust me."

At that point, I like to say, "I assume that you're so good at what you do that you'll be outta here doing bigger and better things in about four minutes. It's not you I don't trust. It's the guy who I don't know who will replace you that I don't trust."

You know you have a well-written contract if somebody who knows nothing about the specifics of your deal could read it and understand the deal. If your contract doesn't meet this standard, you need to get one that does.

Let's do a reality check. Why are tech contracts often so bad?

For starters, tech contracting is a relatively new legal specialty. Outside of a few places like Silicon Valley and Boston, you just can't find many lawyers with legitimate experience doing these deals.

The potential client asking about the experience might have the audacity to think legitimate experience means having done several of these deals.

Before you think lawyers are completely at fault for bad tech contracting practices, let me assure you that's not true. Many times, the first draft has never crossed a lawyer's desk.

After all, why involve your tech lawyer when you have the contract form that somebody else in your industry used or have the contract your lawyer gave you for a different deal?

As for the answers, we could start with one size doesn't fit all and you're playing with fire. While it's tempting to use the form your competitor used, you really don't know that it's any good. The odds are that it isn't.

If you're on the buying side of a tech deal, you shouldhave your tech lawyer prepare the contract from scratch.

If your tech deal is worth doing, it's worth doing right.

If you're buying tech services, you should demand that the other side agree to high-quality legal documents. If excellent documentation of your deal doesn't seem important to them, you should question at what point high-quality will become important to them.

One-Size-Fits-All Approach to Tech Contracts Will Fail is republished from
Mark Grossman
Mark Grossman