Could Your Contract Be Harming Your Business?
In 2011, GE Aviation, a company that does business with major corporations all over the world, decided to review the contracts it asks its customers to sign. The company’s current contract was anywhere from 25 to 52 pages in length and often included two pages just for definitions – what the words meant in the contract, or at least how GE Aviation was defining them.
Of course, once submitted to the customer, the contract had to be reviewed by the customer’s lawyers before signing. When changes were made to the contract, as so often happens, GE’s team of lawyers had to review those changes. The entire process could take weeks, even months, with both sides waiting to complete the sale.
However, in far too many cases, this went on so long and the contract caused so many complications, it killed the sale. This is why GE Aviation decided it was time for a contract overhaul.
By 2014, a new “plain language” contract replaced the old cumbersome one. Instead of a 52-page contract, it was now five to seven pages long. Words and phrases such as “heretofore,” “consequential damages,” “breach of warranty,” “post tender negotiation,” “romalpa clause,” or “force majeure” were removed. What really do they mean anyway?
Once this happened, the amount of time spent on contract review by both parties was cut by more than 60 percent. Customer feedback was universally positive. There was not one dispute over the wording of the contracts, so the teams of lawyers were no longer needed. And best of all, GE Aviation attributes much of the increase in sales since then to the new, simplified contract.
Lengthy Contracts in the Service Industry
Contracts in the different contract service industries often start out relatively simple. Many of their early customers are smaller and a lengthy contract is just not needed. But as the business grows, so do the page lengths of the contracts.
Many times, it is not the fault of the contractor. When doing business, for instance, with city, state, or federal government, it is often the government contract that must be agreed to. Invariably, these contracts are several pages long, complicated, and filled with legalese.
However, as the company begins to work with larger clients, the clients’ requirements can become considerably more complicated and things can go wrong. Customers want protections built into the contract to limit their liability just in case something does go wrong, and the jansan company also wants to take steps to minimize or eliminate their responsibility in such situations.
This is often when the jansan company decides it’s time to visit an attorney. This is when the multipage, much more complicated, harder to read and understand contracts are written. However, and in all fairness to lawyers, many are now well aware that a simplified, plain-language contract will usually serve both parties better. Yet, that does not mean that’s the way they always get written.
Getting Back to Simple Contracts
Before we discuss ways to simplify your contract, let’s make sure we are all on the same page as to what a contract is. Essentially, it is a legally binding agreement between two or more people or businesses, usually referred to as the “parties,” for some exchange. For a jansan company, this would be an exchange of products or services for payment.
It typically contains some “terms and conditions,” and that’s when things can start to get complicated. To help keep it simple, the first step is to see how many contract formats you are now using. Some jansan companies may have one contract format for use with a large client; another for a smaller customer; one for industrial locations; and still another for a retailer.
In our GE Aviation example, the company found it had seven different contract formats for use with different customers. This often caused considerable confusion. Sometimes the wrong contract format was delivered to the wrong customer. As a result, it was decided that the company would have just one, simple, plain-language contract for all customers.
The next steps for jansan companies to take are the following:
• Create a team to review the current contract with the goal of simplifying it. Often it is a good idea to call in a cleaning consultant at this point to work with the team. The team should include three or four people familiar with contracts and the contracts the company uses.
• Everyone on the team must read the current contract and thoroughly understand what it is trying to say. It may be necessary to have an attorney define what certain phrases mean and also make sure you understand why they are in the contract.
• After this, wait a day or two. It often takes a couple of days for everything to settle in so you can fully understand what the current contract is trying to say.
• Next, the team must establish some goals. For instance:
The contract will be no more than one page long.
There will be no legalese used.
No complex sentences or wording will be pulled from the old, complicated contract.
The reading level of the contract will be low. In GE Aviation’s case, it was decided that if a high schooler could not understand the contract, it was too complicated.
• With the goals in place, each person on the team is to start rewriting each section of the contract as they understand it, but using simple-to-understand wording.
• Now, merge the drafts and create a first draft based on everyone’s input. This requires teamwork and some roundtable discussions.
• Prepare a final draft and have it reviewed by an attorney.
The
attorney must be aware of your goals. You want a contract that protects your
interests, but you also want it to be short, easy to understand, user-friendly,
and in plain language.
In GE’s case, the attorneys initially believed the plainness of the revised
contract was “jarring,” as one lawyer put it. But once a couple of changes were
made, they found that the shortened and simplified contract covered all the
bases and they approved it.
Things to Avoid
If you take a look at some contracts, they will often contain words that are in all capital letters. This is something to avoid.
Usually, when capitalized words are used in a contract, it means that the words or phrases have a specific meaning and often specific just to a specific contract. Because you want to minimize the use of words that must be defined, use a more common word that is easily understood and does not need to be defined or capitalized.
Other problems to avoid include the following:
- Long sentences
- A lot of text without subtitles or headings. Use simple headings to break up the sections of the contract. It’s easier to read and understand. Often one-word headings work best.
- Hard to read fonts. The font should be large enough so it is easy to read. A cleaner font such as Arial works well and is universally used. Most people are comfortable with this font.
- Avoid using Roman numerals. When numerals such as I, II, and III are used in a contract, it often makes it more difficult to read.
The final step, and something we do not want to avoid, is to ask for feedback from customers. They will tell you if there are sections they did not understand or need to be revised. Listen to their suggestions. If you hear them from multiple customers, it means small revisions to the contract may be necessary.
Ron Segura is president of Segura Associates. His company works with organizations and cleaning contractors to help them streamline their operations as well as promote sustainability and healthier cleaning strategies. This allows them to function more effectively and efficiently and realize cost savings.
In 2011, GE Aviation, a company that does business with major corporations all over the world, decided to review the contracts it asks its customers to sign. The company’s current contract was anywhere from 25 to 52 pages in length and often included two pages just for definitions – what the words meant in the contract, or at least how GE Aviation was defining them.
Of course, once submitted to the customer, the contract had to be reviewed by the customer’s lawyers before signing. When changes were made to the contract, as so often happens, GE’s team of lawyers had to review those changes. The entire process could take weeks, even months, with both sides waiting to complete the sale.
However, in far too many cases, this went on so long and the contract caused so many complications, it killed the sale. This is why GE Aviation decided it was time for a contract overhaul.
By 2014, a new “plain language” contract replaced the old cumbersome one. Instead of a 52-page contract, it was now five to seven pages long. Words and phrases such as “heretofore,” “consequential damages,” “breach of warranty,” “post tender negotiation,” “romalpa clause,” or “force majeure” were removed. What really do they mean anyway?
Once this happened, the amount of time spent on contract review by both parties was cut by more than 60 percent. Customer feedback was universally positive. There was not one dispute over the wording of the contracts, so the teams of lawyers were no longer needed. And best of all, GE Aviation attributes much of the increase in sales since then to the new, simplified contract.
Lengthy Contracts in the Professional Cleaning Industry
Contracts in the professional cleaning industry often start out relatively simple. Many of their early customers are smaller and a lengthy contract is just not needed. But as the business grows, so do the page lengths of the contracts.
Many times, it is not the fault of the jansan company. When doing business, for instance, with city, state, or federal government, it is often the government contract that must be agreed to. Invariably, these contracts are several pages long, complicated, and filled with legalese.
However, as the company begins to work with larger clients, the clients’ requirements can become considerably more complicated and things can go wrong. Customers want protections built into the contract to limit their liability just in case something does go wrong, and the jansan company also wants to take steps to minimize or eliminate their responsibility in such situations.
This is often when the jansan company decides it’s time to visit an attorney. This is when the multipage, much more complicated, harder to read and understand contracts are written. However, and in all fairness to lawyers, many are now well aware that a simplified, plain-language contract will usually serve both parties better. Yet, that does not mean that’s the way they always get written.
Getting Back to Simple Contracts
Before we discuss ways to simplify your contract, let’s make sure we are all on the same page as to what a contract is. Essentially, it is a legally binding agreement between two or more people or businesses, usually referred to as the “parties,” for some exchange. For a jansan company, this would be an exchange of products or services for payment.
It typically contains some “terms and conditions,” and that’s when things can start to get complicated. To help keep it simple, the first step is to see how many contract formats you are now using. Some jansan companies may have one contract format for use with a large client; another for a smaller customer; one for industrial locations; and still another for a retailer.
In our GE Aviation example, the company found it had seven different contract formats for use with different customers. This often caused considerable confusion. Sometimes the wrong contract format was delivered to the wrong customer. As a result, it was decided that the company would have just one, simple, plain-language contract for all customers.
The next steps for jansan companies to take are the following:
• Create a team to review the current contract with the goal of simplifying it. Often it is a good idea to call in a cleaning consultant at this point to work with the team. The team should include three or four people familiar with contracts and the contracts the company uses.
• Everyone on the team must read the current contract and thoroughly understand what it is trying to say. It may be necessary to have an attorney define what certain phrases mean and also make sure you understand why they are in the contract.
• After this, wait a day or two. It often takes a couple of days for everything to settle in so you can fully understand what the current contract is trying to say.
• Next, the team must establish some goals. For instance:
The contract will be no more than one page long.
There will be no legalese used.
No complex sentences or wording will be pulled from the old, complicated contract.
The reading level of the contract will be low. In GE Aviation’s case, it was decided that if a high schooler could not understand the contract, it was too complicated.
• With the goals in place, each person on the team is to start rewriting each section of the contract as they understand it, but using simple-to-understand wording.
• Now, merge the drafts and create a first draft based on everyone’s input. This requires teamwork and some roundtable discussions.
• Prepare a final draft and have it reviewed by an attorney.
The
attorney must be aware of your goals. You want a contract that protects your
interests, but you also want it to be short, easy to understand, user-friendly,
and in plain language.
In GE’s case, the attorneys initially believed the plainness of the revised
contract was “jarring,” as one lawyer put it. But once a couple of changes were
made, they found that the shortened and simplified contract covered all the
bases and they approved it.
Things to Avoid
If you take a look at some contracts, they will often contain words that are in all capital letters. This is something to avoid.
Usually, when capitalized words are used in a contract, it means that the words or phrases have a specific meaning and often specific just to a specific contract. Because you want to minimize the use of words that must be defined, use a more common word that is easily understood and does not need to be defined or capitalized.
Other problems to avoid include the following:
- Long sentences
- A lot of text without subtitles or headings. Use simple headings to break up the sections of the contract. It’s easier to read and understand. Often one-word headings work best.
- Hard to read fonts. The font should be large enough so it is easy to read. A cleaner font such as Arial works well and is universally used. Most people are comfortable with this font.
- Avoid using Roman numerals. When numerals such as I, II, and III are used in a contract, it often makes it more difficult to read.
The final step, and something we do not want to avoid, is to ask for feedback from customers. They will tell you if there are sections they did not understand or need to be revised. Listen to their suggestions. If you hear them from multiple customers, it means small revisions to the contract may be necessary.
Ron Segura is president of Segura Associates. His company works with organizations and cleaning contractors to help them streamline their operations as well as promote sustainability and healthier cleaning strategies. This allows them to function more effectively and efficiently and realize cost savings.
