Experienced contract drafters know that often they have to do more than just copy and edit an old form. To one degree or another in a given deal:
- They play the what-if game, trying to identify events that might occur during the course of the parties’ business relationship. (Client input is always useful here.)
- They make judgments about which contingencies ought to be covered in the contract draft. Address too many contingencies and the draft becomes time-consuming to review. Address too few contingencies, and your client might someday find itself mired in a lawsuit that could have been avoided with advance planning.
- They try to write understandable, operationally-workable clauses to address the selected contingencies.
The first step of that process — building a reasonably-comprehensive list of contingencies to consider — might be the most crucial one. Here’s a simple three-step approach.
Step 1: List the S N I T S phases of the business relationship
Any business relationship can be subdivided into some standard top-level categories (think S N I T S):
- Normal operations
- Infrequent but not-unexpected operations
- Trouble, in various shapes and sizes
- Shutdown of the relationship — every business relationship comes to an end sometime
Within each operational phase you can list specific known possibilities.
For example, under “Infrequent operations” you could list things like a product launch; a strategic review; a new funding round; etc.
Under “Trouble,” you could list, say, missing a customer deadline; a product recall; a lawsuit; bad PR; and the like.
Step 2: List the different players
The next step is to build a list of the different players who might appear on the scene during various phases of the business relationship. For example:
- Parties X, Y, Z, etc.
- Alliance partners
- Regulatory bodies
- Law-enforcement agencies
- Taxing authorities
- Market-makers such as Nasdaq
- Technical-standards groups
- Particular constituencies within each of the foregoing — employees, executives, boards, specific departments, specific individuals, etc.
Step 3: Methodically cross-match what different player(s) might want — or not want — during various phases of the relationship
The final step in brainstorming a what-if list is to methodically cross-match the two lists you just developed: The phases of the business relationship, and the possible players.
For each category of player, proceed briskly through the list of relationship phases. For each phase, try to imagine what that player might want to make happen — or to prevent from happening. Then decide whether to address that possibility in the contract draft.
Here’s a simplified hypothetical example:
- Player: Service provider’s employees
- Relationship phase: Normal operations
- Something the player wants: Service provider’s employees sue the customer for the provider’s allegedly-improper employment practices. (This is not unheard-of: Wal-Mart was sued by employees of some of its foreign suppliers because of the suppliers’ allegedly-abusive practices.)
- Possible contractual coverage: The customer may want to include in the draft contract a requirement that the provider defend and indemnify the customer from any suits by the provider’s employees, perhaps with an insurance requirement to provide the necessary funding.
The beauty of this approach is that the contingency lists and contract language you develop are often reusable.