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Technology Contracts: Lawsuits Waiting to Happen

Technology Contracts: Lawsuits Waiting to Happen

Got a technology contract to cover your latest deal, like an acquisition, merger or commercial transaction? It may not protect your interests the way you think it does.

Got a technology contract to cover your latest deal, like an acquisition, merger or commercial transaction? It may not protect your interests the way you think it does. Horribly written contracts for tech and telecom deals cross my desk every day--they're a lawsuit 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.

In the past, legal documents, whether private placement, merger and acquisition, or documenting a large commercial transaction, used a time-tested formula established by quality lawyers. The deal process was a sophisticated one, done using a mature contracting process. The lawyers involved even understood what it was they were doing.

The problem these days largely surrounds tech and telecom contracting. Usually, the first draft of the contract comes from the seller of the services. It might be services like managed network services, the development and maintenance of a website with Web 2.0 features, or for the customization of some software. While in many ways the Web 2.0 world is more sophisticated than the go-go dotcom 1990s, more often than not these deals still show the wisdom of the 20-minute-old dotcom driving the deal. (All that's missing are pimples on the documents.)

However, don't think this arises only when doing deals with smaller or startup companies. I once did a deal with IBM and I smiled when I read the master agreement because it was a well-written document crafted by some major New York law firm. It had the pro-IBM bias that I expected, but it's simple to negotiate it back toward the middle (as your vendor is kicking and complaining--and lying--that you're the most difficult customer they've ever had).

But then I read Exhibits A - F. Now I was reviewing the workmanship of six different writers from different departments with titles varying from paralegal, to contract specialist, to sales person. They did not collaborate before they added their piece to the agreement and the only things they seemed to share was that none had ever read the master agreement and they had no skill in legal writing.

It's really a simple formula. Poorly written contracts lead to war. (In our society, we call legalized and ritualized warfare--"civil litigation." Some speculate that it's an improvement over dueling, but I wonder about that.)

Assume New People Will Be Involved

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, but it's best to start from the opposite perspective.

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, people are promoted, and consultants move along. 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 provision in the contract, 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 do trust you, but 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, but rather it's your replacement I don't trust. So let's clarify the clause."

You know you have a well-written contract if someone 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 negotiate one that does.

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