The Waste of Poorly Written and Unreadable Contracts

The Waste of Poorly Written and Unreadable Contracts

I read a lot of contracts in my work and despite the nature of the contract, what it is for, and what it is about. I would say 98 percent of them suffer from the same infirmity…they are essentially unreadable.

I don’t mean that they are not written in the English language (although the question of whether legalese is English is debatable). I mean that the document can’t be read and understood in a single close reading, even by attorneys. After years of client contract review and research of my own, I am left with one conclusion: most contracts are not written to be read by lawyers, let alone the vast majority of people without a law degree who actually use contracts every day.

The ultimate problem with unreadable and poorly drafted contracts is that they are a waste of time and money resources.

To prove my point, here is an exercise. Read this provision from a standard vendor contract issued by a major national trade association to my client when the association wanted to purchase website design, programming, and integration services. No cheating; read it only once.

Approval.  The completion of each Phase, and the Deliverables associated with each such Phase, shall be subject to the prior written approval of Association in each instance.  Prior to moving from one Phase to the next, Vendor shall be required to obtain Association’s written approval for all Deliverables described for such Phase, as well as written approval to proceed to the next Phase. In the event that Association does not approve a Deliverable for a reasonable non-conformity, the Parties shall work together in good faith to resolve the identified problems with the Deliverable, after which Vendor, at its sole cost, shall modify the Deliverable and re-submit the revised Deliverable for Association’s review and approval.  In the event that Association rejects a Deliverable after three (3) revision cycles and Association determines, in its reasonable business judgment, that such Deliverable is critical to the value of the Services, Association shall have the right to terminate the Agreement upon written notice to Vendor, which notice shall reference the terms of this Section 4.

Quick, without re-reading the section, can you tell me the most important parts of that section?

Don’t feel bad if you can’t, I couldn’t either on the first read and I get paid to read this stuff. Now go back and tell me how long it takes you to read and understand what was said and what each parties’ rights and obligations are in this provision.

The main problem with this provision is not the ideas presented in the section. Rather it is the manner in which the ideas are presented that is objectionable.

Believe it or not, there are just four sentences in that section with 26, 36, 52, and 56 words respectively. That is an average of 42.5 words per sentence.

According to a 2009 American Press Institute study discussing news reporting:

  • When the average sentence length in a piece was fewer than eight words long, readers understood 100 percent of the story.
  • Even at 14 words, they could comprehend more than 90 percent of the information.
  • But move up to 43-word sentences, and comprehension dropped below 10 percent.

The contract passage was 42.5 words on average and this was a shorter passage. So readers of this contract are going to understand ten percent of what is presented which is a major problem and a waste of time and money.

To understand the waste of resources consider that my standard contract review process (similar to most attorneys) has three main steps:

  1. an initial full read of the contract to get a general view of the deal,
  2. a detailed read with note taking for in-depth understanding, and
  3. a second detailed read for implications on my client’s interests.

All this assumes I don’t need to make any changes to protect my client’ s interests (which in this case was required because of how the project was going to work). The standard review on that provision took about 10 minutes for 170 words. The entire contract is 5,400 words long. At the same average pace, it takes 5.6 hours to review a contract–without the time spent negotiating the changes. If your lawyer charges $400 an hour, you just spent $2,240 just on a review and probably will spend close to $4,000 (or more) by the time the contract gets signed.

Now consider that my client also had to be involved in this process and her time is valuable as well. She makes more money coding and developing business. Negotiating contracts is not a good use of her time.

In this case, the contract value was going to be close to $50,000, but paying for this unnecessary review is still a cut into the bottom line profits.

Reviewing ContractsThe Solution

A quick and dirty test for determining if your contract is readable is to do a quick word count of a random sample of contract language. Count the sentences and count the words. Divide the word count by the sentence count to get an average length. If the average word count per sentence 20, it is too long. If the average sentence length exceeds 45, it is essentially unreadable.

All of the sentences in the contract section above can and should be shorter. The first two sentences are repetitive and the last two sentences can both be much shorter. (I am going to do an in-depth analysis of this provision in a separate post).

Don’t fall into that trap because the deal is complicated the contract must include complex language that borders on unreadable. The complexity of the deal is not a determinant of the readability of the contract. Contracts should be clear in language. Clearly drafted contracts conserve precious resources.

A contract is a written description of a business relationship. So, like any kind of human relationship, a business relationship is built on trust and understanding. If you can’t understand the contract that is presented to you, are you going to trust the business? Chances are no, you won’t.

Clear contract language promotes understanding. Understanding promotes trust. Trust promotes repeat business and referrals. Repeat business and referrals promote profits.