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The Contract Playbook: What It Is and Why It's Important

Dermot Whittaker legal professionals, playbook

A contract playbook lists the terms and conditions of a contract type and provides clear guidance to negotiators for defending these provisions, offering variations of these provisions, or holding fast to the provisions as non-negotiable. Playbooks also give negotiators instant access to a plain language rationale for the organization’s use of a given clause and when to escalate an issue to a legal or business approver.

Contract playbooks can save time and money for organizations that repeatedly negotiate a given contract type. Equally important, playbooks ensure that the organization’s legal and business interests are served in its contracts, reducing risk.

Contract Playbook Basics

Here are the basics of a contract playbook.

Playbooks are built around a contract type. The provisions of a sales agreement, purchase agreement, non-disclosure agreement, license, or lease will be different and carry different levels of risk. Any one of these contract types should have its own playbook.

Playbooks contain reviewed and approved terms and conditions. The language in the playbook should reflect careful drafting and review from both legal and business. Business provides guidance on what should be accomplished and protected in a given contract, and legal provides clear language that reduces risk to the organization.

Playbooks provide specific contract language. With a playbook, an approved negotiator, even an attorney, should have the exact language in front him or her, to be deployed without deviation. Alternate language (fall back clauses) should be ready to deploy verbatim.

Playbooks provide clear guidance. They do this in three important ways. Playbooks give a short explanation of the legal language used for a provision. The rationale for the specific language is made explicit, quickly bringing a negotiator up to speed on the importance of the provision. Playbooks provide guidance for defending the provision from changes and the risks such changes present. Importantly, playbooks make clear when to walk away when a provision or its fallbacks are not acceptable to a counterparty. This reduces the temptation (or pressure) for a negotiator to give way on crucial points to get a contract across the finish line.

Playbooks warn about counterparty language. Playbooks are usually built around one’s own terms and conditions, but they should also address provisions likely to be offered by a counterparty, especially provisions that are not acceptable. The negotiator using the playbook should see clearly whether to decline the provision entirely or offer a prepared, acceptable version of it from the playbook.

Playbooks signal where and when escalation is needed. Ideally, the playbook gives negotiators everything they need to conclude a sound contract without involving legal or more senior management. In some cases, however, it may be appropriate to show where any further change requires escalation to legal or business approvers.

A contract playbook often takes the form of a table or spreadsheet, with each provision represented in a row, and all the relevant information arranged in columns: provision name and number, precise language to use, explanation of the language, common points of objection, points of defense, alternate language (fallback clauses), and escalation information where relevant. An “approved on” date in the header/footer is vital, since a chief benefit of a playbook is to use the most recently approved terms and conditions.

Creating a Contract Playbook

When an organization – usually led by the legal team – decides to create a contract playbook, it does so to save time and money, to improve contract performance, and to reduce risk. Creating a contract playbook means

  • Gathering legal, business and contract professionals with the knowledge and judgement to standardize contract language
  • Reviewing contract performance to identify most negotiated terms and their consequences over time
  • Drafting contract language and fall back clauses as well as providing cogent explanations of their use in negotiation
  • Balancing business goals, legal protection, and usability to create a guide for negotiators that helps them conclude most contracts without further review. It’s important to remember that while legal can provide optimal language for most desired outcomes, executives also need to decide how much business risk the organization can accept in a contract.
  • Training the users to understand the playbook and use it in practice. For some organizations, this training will include new attorneys and other approved negotiators such as contract managers and procurement professionals. For other organizations, interested parties such as sales are briefed on the playbooks to increase understanding of the organization’s position in negotiations and to encourage a united front when dealing with clients and other counterparties.
  • Reviewing and updating the language in response to changes in law, new business scenarios, reassessment of the organization’s financial position.

The Value of the Contract Playbook

The benefits of a contract playbook – why it’s important – are many. Here are a few.

Playbooks save negotiators time. An experienced negotiator can read and understand the position of the organization and confidently apply the guidance to a specific negotiation. Responding to a counterparty’s redlines is a matter of replying with acceptable changes or making the case for the organization’s original language. The negotiator is clearly forewarned about counterparty language that is not acceptable and can respond quickly. The time spent on this back-and-forth is reduced because the organization’s position is clearly laid out in the playbook.

Playbooks reduce referrals to legal. A successful playbook should allow a negotiator to conclude a contract without going back to legal for review and approval. This saves time in the negotiation itself and frees up time for legal to focus on more complex negotiations instead of rewording boilerplate. That reduces legal costs in terms of extra hours, new attorney hires, or legal outsourcing. Avoiding referrals for 50% of the target contract is a minimal standard; many organization shoot for 80%, or more for highly standard contracts such as NDAs.

Playbooks encourage use of standard, optimal language. When the playbook team has done its job right, the terms and conditions in the playbook represent the best position for the organization. When the playbook is adhered to, that position becomes standard across the organization. The risks of divergent language or different provisions are greatly reduced. The organization can rest assured that its contracts are working on its behalf from a business as well as a legal perspective.

Playbooks put everyone on the same page. Separate review of contracts by business, finance, and legal can pit these departments against each other. Creating a contract playbook brings these groups together to create language that accomplishes their goals while addressing their perceptions of risk. Playbook terms and conditions reflect the expertise of legal and the experience of the business manager. The rationale for the final language and the overall importance of a given provision is recorded in the playbook and becomes part of the training. This reduces internal re-negotiation and second guessing of contract language.

Playbooks encourage use of current language. As the legal and business landscape changes, so do standard terms and conditions. When a contract playbook is reviewed and updated (every two to three years is common) current language supplants outdated language going forward for everyone using the playbook. For this reason, a plan should ensure that negotiators have and use only the current playbook reflecting any recent updates. Control over playbook versions is easier to accomplish with an electronic playbook managed centrally and accessed by individuals via computer.

Playbooks simplify contract review. Reviewing past contracts for inconsistent or problematic language is a chore. While legal review of executed contracts and licenses cannot be avoided, the fewer variations in past contracts, the better. Over time, use of the playbook produces contracts with consistent language across contract type, simplifying legal review and reducing nagging worries about individually crafted terms and conditions.

Digital Transformation of the Contract Playbook

There are distinct advantages to creating and managing a contract playbook as part of a contract management or other digital system: deploying the same playbook across the organization, eliminating separate desktop versions that fall out of date, updating and approving contract language in real time. Using an electronic playbook as part of a contract management system, a negotiator can refer to its terms in real time and respond to redlines immediately. The negotiator can insert fallback clauses without risk of transcription error, and clearly see non-negotiable points where the she needs to hold firm.

Saving money and reducing workload are two excellent reasons to start creating a playbook. The benefits are shared by every constituency in an organization: overworked attorneys, cost-conscious financial officers, backlogged procurement managers, eager-to-close sales managers, and multi-tasking contract managers. Best of all, your team members will up their negotiating game while your organization benefits from better contract management and reduced costs.