The Case for Plain-Language Contracts

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The Case for Plain-Language Contracts

What do you call a dense, overly lengthy contract that is loaded with legal jargon and virtually impossible for a nonlawyer to understand? The status quo. For the most part, the contracts used in business are long, poorly structured, and full of unnecessary and incomprehensible language. Is there some practical reason for this? Are pages of definitions; words like “heretofore,” “indemnification,” “warrant,” and “force majeure”; and phrases like “notwithstanding anything to the contrary herein,” “subject to the foregoing,” and “including but in no way limited to” necessary for an agreement to be enforceable? Is there some counterintuitive value in useless boilerplate language? Does a contract really need 15-word strings of synonyms; all-cap, italicized, bolded sentences that span multiple pages; awkward sentences containing numerous semicolons; and outdated grammar to be worthy of signature? In my opinion, the answer is a resounding no. A contract should not take countless hours to negotiate. Business leaders should not have to call an attorney to interpret an agreement that they are expected to administer. We should live in a world where contracts are written in accessible language—where potential business partners can sit down over a short lunch without their lawyers and read, truly understand, and feel comfortable signing a contract. A world where disputes caused by ambiguity disappear. That might seem far-fetched. However, I believe it is indeed possible—as a three-plus-year effort to promote plain-language contracts at GE Aviation’s digital-services business has demonstrated. Since this initiative began, in 2014, that unit has signed more than 100 such contracts. Those agreements took a whopping 60% less time to negotiate than their previous legalese-laden versions did. Some customers have even signed plain-language contracts without a single change. Customer feedback has been universally positive, and there hasn’t been a single customer dispute over the wording of a plain-language contract. To be clear, I’m not talking about “simplified” agreements with fewer words, better headings, and cleaner fonts. I’m talking about a contract that a high schooler could understand with zero context or explanation. As Robert Eagleson, a scholar on the topic, has put it: Plain language “lets the message come through with the greatest of ease.” Plain-language contracting is not a novel idea. It’s a movement that started many years ago and, perhaps surprisingly, made initial headway in the U.S. government. In 1972, President Nixon ordered that “layman’s terms” be used in the Federal Register. Six years later, President Carter issued an executive order stipulating that government regulations should “be as simple and clear as possible.” The Clinton administration went slightly further in 1998, by expressly obligating federal agencies to use plain English. That same year, the U.S. Securities and Exchange Commission published A Plain English Handbook for people drafting security disclosure documents. It’s still being used today. In 2010 the U.S. Congress passed and President Obama signed the Plain Writing Act, whose stated purpose was “promoting clear government communication that the public can understand and use.” As Obama’s administrator of the Office of Information and Regulatory Affairs noted, “Plain language can make a huge difference” by saving money and making it “far easier for people to understand what they are being asked to do.” The agency, which was responsible for administering the law, issued guidance on plain language that remains in effect. In the private sector, plain language has saved time and money for many organizations. In his book Writing for Dollars, Writing to Please: The Case for Plain Language in Business, Government, and Law, Joseph Kimble cites a number of them. After the Cleveland Clinic simplified its billing statements in 2008, for instance, it saw a significant uptick in patient payments and was able to recover an additional $1 million a month. And after Sabre Travel introduced plainly written guidelines to help customers install its computerized flight-information system, annual calls to Sabre’s help desk dropped 70%, yielding savings of more than $2.4 million. Yet despite such successes, plain language has been slow to catch on in the business world.

The Business Challenge FOR Language Contracts

In 2013 I was named the general counsel of GE Aviation’s digital-services unit. I was responsible for managing, with the help of others from the Aviation legal department, the unit’s legal activity, including contracting. Shortly before I assumed this role, GE Aviation had consolidated three separate digital-services businesses that it had acquired, all of which performed data analysis to identify ways to optimize customers’ operations. The leaders appointed to run the newly merged business were trying to grow it and formed a team to make that happen. Speed to market was key. The team’s business strategy was sound, but as the members began executing it, they encountered an obstacle: The complexity of the contracts was making negotiations drag on for months, frustrating prospective customers. Rather than pursuing new opportunities, capturing new business, and delivering world-class digital solutions, the sales team was spending most of its time debating archaic contract language. Even though the three businesses sold very similar services, they all had their own contracts, a legacy of their pre-GE days. There were seven contracts in total. They averaged 25 pages in length; the longest was 54 pages. They included lengthy recitals (which explain the reasons—at times in excruciating and unnecessary detail—that the parties are signing the contract) and extensive definitions. One contract contained 33 definitions that spanned two pages. Each contract had a unique structure and used distinctive language. These documents had only one thing in common: None of them used plain language; legal jargon and complexity pervaded them all. My head was spinning when I read each agreement. I felt like a bewildered Dilbert cartoon character: Was I looking at a contract or a textbook on quantum physics?

The Solution

The legal team supporting the newly formed business realized that it had to act. The team proposed converting the seven contract formats into one single plain-language contract. The team members described their vision to the leaders of the digital-services business in bold terms: If a high schooler can’t understand the entire contract, it ain’t good enough. But the contract must also protect GE’s interests, they said. Transformation without adequate safeguards was not acceptable, even if it did reduce the time spent on negotiations. The business unit’s leaders embraced the idea without hesitation. In fact, they adopted it with zeal, dedicating resources to the project and making it clear that they considered the creation of an easy-to-understand contract to be vital. As a first step, the legal team organized a multiday off-site with the newly formed plain-language team—a group that included people from sales, engineering, and product support as well as the legal department. The goal was twofold: (1) gain a deep understanding of the services offered, and (2) identify their operational risks. The legal team knew that assumptions were often made about what to include in contracts without ever stopping to ask whether the services being covered justified those passages. So, to avoid unnecessary text in the new contract, the plain-language team deliberately decided to put off drafting it to another day. The off-site was a success; the plain-language team left with keen insight into the offerings and the associated operational risks. Next the legal team started drawing up the contract, beginning from scratch. No templates. No “sample” clauses. No use of or reference to the existing contracts. We simply started typing on a blank sheet of paper, focusing only on the covered services and the risks we’d identified. Throughout the process, we applied our litmus test: Can a high schooler understand this?

Before and After

Unlearning how to write like a lawyer was harder than we expected. It took more than a month to produce the first draft. The initial version was just five pages—significantly shorter than the existing contracts. More important, it was a clear and understandable document. It didn’t contain a single “heretofore,” “whereas,” or “forthwith.” There were no superfluous introductory recitals and legal jargon. Legal concepts that historically had been made complicated in contracts were explained in lay terms. Sentences were short and written in the active voice. We eliminated all definitions. The initial draft was truly a marked departure from the norm. After reading it, one GE Aviation lawyer commented: “It is a little jarring because it is so user-friendly and plainly written.” She was not alone in her reaction. All who read it—lawyers and nonlawyers alike—were surprised at its plainness. The legal team then asked the outside law firm of Weil, Gotshal & Manges to vet the contract. The firm assembled a team of lawyers with expertise in a variety of areas, including commercial contracting, intellectual property, litigation, and alternative dispute resolution. The vetting took roughly three weeks, and Weil proved to be a great partner throughout. With an eye toward ensuring that the final contract adequately protected GE’s interests, the Weil team routinely challenged our in-house legal team. The vetting resulted in refinements, but the new version remained true to our commitment to plain language. The digital-services legal team then reviewed the contract with several other lawyers within GE who were seasoned in commercial contracting. This produced yet another draft. Again, it did not compromise on the commitment to plain language.

The Result

The contract was then presented to the leaders of the digital-services business. It was well received, to say the least. The head of sales at the time characterized it as “a true paradigm shift in contracts and language.” It was indeed. For instance, the compliance-with-laws clause now reads: “During the contract term, we will comply with all of our legal obligations.” One sentence containing 13 very understandable words. The previous iteration of that clause consisted of five distinct subsections, nine sentences, 417 words, and (believe it or not) a reference to the president of the United States. The liability-limitation clause shrank from more than 140 all-capitalized words to just 66 words of regular text. The indemnification clause is now one sentence containing 41 words, down from more than 150. The word “indemnification”—which itself is legalese—is not even used.

Before and After

Now we faced the most important test. Would the new contract have any effect on the duration of negotiations? Would customers—some of whom used complex contracts themselves—accept something so radically different? Would the jarring look of the new contract actually increase, rather than decrease, negotiation time? The results speak for themselves. Plain language has saved GE Aviation’s digital-services business significant amounts of time and money. And customers love it. One customer told us: “The contract worked out really nicely; I prefer a more simplistic approach and contracts written in a fashion I can understand.” Another said: “The agreement was reasonable to work with, as you saw by our extremely limited redlining needed to get to execution.” Nick Brodribb, legal counsel at Qantas Airways, commented: “Australian lawyers have for a long time been dealing with turgid and redundant language crammed into U.S. legal contracts. The drive toward plain English we have seen from GE, along with companies like Airbnb, gives us great hope for the future. Plain English should save time on the front end of a transaction, which allows the business to get into the project quickly, to manage it more easily, and potentially to resolve disputes sooner.” Plain-language contracting is beginning to spread inside GE. GE Healthcare has launched a plain-language initiative. GE’s additive-manufacturing business implemented its first plain-language contract in 2017; the initial customer response has been positive, and the unit’s general counsel and business leaders are committed to making plain language the standard approach.

Language Contracts

The Lessons

I hope our story convinces you of the benefits of making the move to plain-language contracting. For those who decide to go for it, here are a few important lessons we’ve learned:

Be patient.

Complex contracting has been with us for hundreds of years. Don’t rush the process. As the saying goes, old habits are hard to break.

Get smart.

Learn as much as you can about the products or services that will be covered by the contract. If the people selling the product or service know more about it than you do, learn from them—and do it before you start drafting. Then let the product or service and the associated risks determine the substance of the document. Just because you’ve always seen a certain clause in a contract doesn’t mean that it has to be in yours.

Measure your speed.

There is a real allure to a one-page contract or a contract that has fewer than x number of words. But the truth is, fewer pages and words do not necessarily make a contract more comprehensible. Page and word counts should drop, but speed should be the priority. If negotiation time stays the same or goes up, nobody will care how long the agreement is. A negotiation-time metric forces you to focus on what really matters: understandability. The “high schooler” test proved invaluable to us in pursuing that goal. The idea is to make the contracting experience easy for your customer, because, after all, customers determine your success.

Be persistent.

The concept of plain-language contracts and the benefits from them are hard to argue with. Every business wants legal agreements that are easy to understand. Every business wants to spend less time negotiating and more time pleasing the customer. Every business wants to spend less time administering its contracts and more time innovating. But change in any company is hard, and radical change—which this is—is damn near impossible. Creating a solid template for plain-language contracts consumes time, ties up resources, and, given the habits formed over years, taxes your organization intellectually. Without some good old-fashioned grit and stick-to-itiveness, your plain-language initiative will fail. Plain-language contracting takes courage and commitment. It takes putting yourself in the customer’s shoes. And it takes patience. In the end it is worth the effort.