“Are terms understood in the intended way – and what can be done about it?” asks Helena Haapio

Many are probably familiar with the anxiety associated with contracts – tons of pages with small and complicated text. This results in the terms not being read, let alone understood. Not familiarizing them easily leads to misunderstandings, breaches of contract and losses of rights. Fondia had the honour of having Contract Innovator and Coach Helena Haapio in February’s Fondia Academy to talk about how to avoid contract pitfalls through contract design.

Many traditional contracts and terms require a lot of effort to produce and interpret. They cost both time and money and are not of interest to those who should implement them. Contracts alone do not make things happen but require people, whose importance is particularly emphasised in exceptional and problematic situations. Contract design is therefore an important part of risk management, as it ensures that the terms are found, read and, in particular, understood. This is how situations, that can become very costly and time and resource consuming, can be avoided.

Contracts guide the parties and their actions. When an obligation is recorded in a contract, it must be fulfilled. It is the lawyer’s job to make sure that the right terms are chosen and that different situations, that need to be addressed, are identified. In addition to being legally valid, contract terms must be understandable to everyone. From the perspective of a lawyer’s work, this means putting the user experience at the centre; thinking about what the user wants and needs. In addition, it is important that the contract is fit for its purpose and user-friendly.

Haapio: Next Generation Contracts: A Paradigm Shift (2013)

What is contract design and what means are available?

The essence of contract design is to clarify the message of the contract and to make it more understandable to both parties. By no means does this solely mean word formatting, but also the use of visual elements such as timelines and charts. The goal of contract design is to produce understanding, not just text or images.

Visualisation has been studied extensively and the results clearly show that it helps to illustrate and convey information and makes the information visible and understandable. When a person sees an image, the message is conveyed more effectively than with plain text. According to Haapio’s experience, it works best to use both text and an image together. Already Benjamin Franklin stated that pictorial language is a universal language and is primarily better understood than words, no matter how the text is worded.

In Haapio’s opinion, lawyers could start using more images in contracts. People are accustomed to visualisation elsewhere, but perhaps not yet in contracts. However, visualisation is only one tool of design and is by no means a synonym to design patterns and other means that contract designers have. To create a usable and user-friendly contract, a lawyer must consider several structural aspects. For a contract to be functional, the language should be clear, meaning that the vocabulary, structure and formatting of the text should help the reader find the information they need, understand it and use it. It is not just a question of sentence structures or comma places, but much more.

In our Academy, Haapio gave plenty of tips on where to look for help with design. Thanks to the Internet, ideas and help are easily and widely available. Haapio has, for example, co-produced a contract design library for WorldCC with Stefania Passera. The templates are not meant to be copied, but instead used to find ideas and inspiration for how contracts could be formulated so that they work in the field where they should be complied with. Many style guides are also available online and Adobe, for example, has published its own guidelines. There is also a lot of literature on the subject, to which Haapio has greatly contributed.

Terms in practice

Haapio’s experience is that the management of companies and experienced negotiators are often thrilled and feel that the issue is important. On the other hand, those who are enthusiastic and have experimented contract design have encountered difficulties among traditional lawyers, who perceive, for example, the use of images as risky. Haapio points out, however, that so is the use of words, as has often been observed in practice.

Legal design, i.e. making law more user-friendly and accessible, is still such a new phenomenon that there is (fortunately) little case law on the subject. The aim is that design will prevent contracts from ending up in the courts, and this is also Haapio’s wish. She also noted that the pace of change has not been what she hoped, but she is hopeful that things will start to happen now that the legal design phenomenon is topical. Quoting Tim Cummins, the CEO of IACCM: “After a few years, we will look back and think about how long it took to make contracts understandable to the masses whose lives they affect”.