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Are simplified contracts the way of the future?
In an era where complexity often prevails in contracts, the director of SoundLegal advocates for a transition towards more straightforward contracts to promote clarity and foster stronger business relationships.
Grace Robbie
Speaking on a recent episode of The Boutique Lawyer Show, Gemma Nugent, the director and principal lawyer for Perth-based legal practice SoundLegal, discussed the complications that can arise from lengthy and complex contract agreements. She advocated for the legal industry to embrace streamlined contracts, underscoring their importance in reducing misunderstandings, enhancing communication, and fostering more effective collaboration among stakeholders.
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In the same episode, she detailed the three essential components that lawyers must incorporate when crafting contracts for their clients.
With traditional contracts designed to address a multitude of potential contingencies, Nugent identified a critical issue: numerous parties don’t fully understand and comprehend the lengthy agreements they are signing.
Nugent shared her experiences, noting that some clients have told her they avoid reading contracts altogether due to their overwhelming length.
“The industry that I’m working in, and I quite often have conversations ... with the subcontractors that are, second and third tier down that supply chain, say to me, ‘Gemma, I don’t even look at the contract. I actually don’t even know what’s in there,’” she said.
She disclosed that this lack of comprehension means parties “may not understand the risks” and obligations outlined in a contract, hindering effective and successful contractual relationships.
In light of these consequences and risks, Nugent raises a critical question regarding the necessity of such extensive and lengthy contracts, observing that the traditional approach to contract drafting is misaligned with the practical needs of contemporary businesses.
“I don’t think these enormously long contracts are really serving [the] purpose [for all involved], and if that’s so, what purpose are they serving? Is it just a sort of safety net for all kinds of different stuff? Are we making people buy insurance and take on processes that aren’t really necessary? And if that’s the case, is that the best use of everyone’s resources?” she said.
Nugent emphasised that the push for simplicity in contracts would enable agreements to align more closely with the parties’ unique requirements and specific needs, stating, “We can simplify the contract and make it a better match to the actual project that’s being done.”
As the legal landscape evolves and other legal documents and processes become increasingly simplified, Nugent questions why the same approach can’t be applied to contracts.
“Aren’t we simplifying lots of other things as well, [like] the contractual processes and the progress reporting and how many people you need in your procurement team?” she said.
Nugent articulated that legal professionals are responsible for advocating for simplified contracts for their clients rather than defaulting to lengthy and complex agreements.
“If I’m acting in my client’s best interest, it’s incumbent on me to actually say, you don’t need a hundred-page agreement for this. We can use this much shorter one or this simpler one,” she said.
“I think we should be drafting contracts that are fit for purpose and making sure everyone understands them. I don’t believe that the market, the wider market, is served by having massive, long, complicated contracts that no one reads.”
