Design Thinking and Contract Optimization

as published in NCURA Magazine, December 2024

Improving contract negotiation turnaround time in academic medical research has proven to be a complex and difficult problem. Some of the best solutions, like contract management software, are expensive and require enterprise - wide cooperation to implement. This article addresses an extremely powerful tool for reducing contract negotiation turnaround time known as contract optimization, which is simple, fast, and no cost. All it requires is curiosity and a willingness to think differently about how we draft contracts.

Contract optimization is the process of editing legal language in a contract to achieve what we could describe as a frictionless or more efficient contract document that attracts fewer revisions. As will be demonstrated below, even minor redlines that do not seem like a big problem in a single instance do, in the end, have a severe impact on productivity in the aggregate in a high-volume contract shop. Using design-based thinking in our approach to contract drafting may solve that problem, and it is not difficult to do; the harder part is training ourselves to think differently about our role as legal professionals.

Defining the Problem

If you work as a negotiator in a busy contract shop at a large research institution, you will review hundreds of contracts a year, making thousands of revisions along the way. At that volume, patterns begin to emerge. One category of revisions consists of significant or substantive legal issues that genuinely and appropriately require our attention, such as adjusting liability language. However, there is a second category of revisions that involves repeatedly removing the same language that the institution cannot agree to, that no institution can agree to, and that everyone knows that no institution can agree to. Usually, these are phrases or words that somehow found the

way into the industry standard boilerplate and somehow, in defiance of all reason, remain there, although they are deleted every time. Those phrases, words, and clauses are the problem we need to fix. Confidentiality clauses provide a concrete example. Many, but not all, boilerplate confidentiality clauses still contain a passage that requires the party receiving the confidential information to return or destroy that information on termination of the agreement (“return/destruction clause”). This clause might make sense in a commercial setting where the information is a single document containing trade secrets, but in medical research, returning or destroying confidential information is often impossible. The definition of “confidential information” in these clauses would include broad swaths of business records that would be illegal for the institution to destroy. As a result, the same language directed to return and destruction may be deleted every single time they cross a contract negotiator’s desk, which is often. So, what’s the big problem? It’s a simple edit that very few resist. Why would we spend time fussing over this detail?

Adding it All Up: The Not So Hidden Cost of Redlines

In the aggregate, these types of revisions trigger a cascade of inefficiency that is a massive drain on limited human resources. To understand how something so small could create so much trouble, we need to appreciate the strange non-Newtonian physics of high-volume contract negotiation. In the “normal” world, we expect that simple tasks (like a quick edit) will take a short amount of time and that complex tasks will take a longer amount of time; it is just common sense. However, in high-volume contract negotiation, even a tiny revision that will not be resisted triggers a weeks-long process as redlines ping-pong between the parties. The root cause is volume. A typical contract negotiator at an institution, clinical research organization (CRO), or sponsor works on as many as 50–80 contracts simultaneously. As a result, when a task arrives by email– whether it is simple or complex–it will sit in that negotiator’s work queue waiting for attention for days or weeks. When it is returned to the institution, it then goes into that person’s work queue, where it waits for a few days or weeks for attention. We can try to wish it away, but the empirical fact is that in this type of high-volume environment, even simple tasks move forward in slow motion.

As a result, the continued inclusion of the return/destroy clause that everyone knew would be removed each time added weeks to the turnaround time of that document for absolutely no gain.

To appreciate the true enormity of the problem, consider that this is not an isolated event. Many other delete-every-time provisions somehow manage to survive even though they are deleted every time. For example, clinical trial agreements include overly intrusive audit clauses, retrospective debarment clauses, confidentiality definitions that do not exclude results, injunctive relief, non-standard publication language, overly specific insurance clauses, and mandatory arbitration. Many contract templates used by sponsors, CROs, and universities are laden with these no-value, delete-every-time phrases and words.

Unfortunately, there is an even more insidious cost; one that is less direct, less obvious, but no less real. In any high throughput system, whether it is a contract shop or a coffee shop, there is a fine line between extremely busy and dysfunctional system overload. It is a measurable phenomenon in systems analysis called a tipping point – when a system operating above capacity transitions from busy but stable to frantic and unstable. We have all experienced what happens in a coffee shop when there are more customers coming through the door than coffee being handed over the counter. It creates a very predictable downward spiral into dysfunction. As customers, we get impatient; the staff begins to hurry and get upset, more customers pile in, the tension builds, mistakes are made, production slows even more, and eventually, that one customer starts to complain loudly. Ultimately, the system breaks down, and productivity declines.

High-volume contract shops, particularly those at universities, operate just at the edge of that tipping point most of the time. The volume of work is intense, and most contract teams operate at or above capacity every day. In an environment where resources are already stretched so thin, spending weeks deleting contract language that should never have been in the document in the first place is a constant pressure pushing that team toward the dysfunctional side of the tipping point.

We started by examining what looked like a very simple, slight revision and have traced it all the way through the system and demonstrated that these easily overlooked details have a huge impact globally on the operations of an entire contract shop, not just the turnaround time of that document. The good news is that this problem is actually very easy to fix.

Solving the Problem: How to Optimize Contract Language

The key to contract optimization is to think like a designer or engineer. If you ask an engineer to build a low-friction aerodynamic car, they start with their best guess on paper, make it, then actually test it in a wind tunnel. The process is iterative; they use the real data from the wind tunnel to refine the design. We can do the same, except that the car is our template contract, and the wind tunnel data are the redlines we get back. The best way to optimize a contract is to assign someone in your organization the task of globally reviewing and keeping track of the redlines that are coming back on your template agreements. That person should not be a negotiator on the frontline struggling to keep up; rather, it should be someone specially assigned who has the time to slow down and look for trends or hot spots. In a high-volume setting, patterns will emerge. If the same passage in your template is returned with proposed revisions 90% of the time, that is very solid evidence that the clause in question needs attention. It does not necessarily mean that the passage needs to be changed. Instead, it may represent an unpopular legal position that your organization has knowingly and intentionally taken, in which case, the added negotiation time is part of the known cost of your unusual legal position. More often than not, these redline hot spots are likely to reveal the type of no-gain delete-every-time boilerplate junk phrases addressed above. Why not save yourself, and everyone, the weeks of wasted negotiation time by deleting or revising them?

In any high throughput system, whether it is a contract shop or a coffee shop, there is a fine line between extremely busy and dysfunctional system overload.

Alternatively, if the redlines that are coming back are routinely massive and broadly distributed throughout the agreement, this is usually a good indicator that your organization should consider completely rebuilding the template. This is a particularly common problem with newer or smaller organizations, where the document was drafted by someone who does not have the benefit of having already seen a huge sample of how this type of agreement is usually written. There are certainly times when custom drafting is required, but there is a strong incentive to stick close to established templates. In the strange non-Newtonian physics of high-volume contract negotiation, non-standard agreements are disruptive, whereas standard agreements capitalize on and leverage the existing processes. Why deliberately court delay and chaos when an expedient option is available? Either way, the great thing about optimization is that it is entirely empirical. You do not need to guess what will make your contract faster. They will tell you if you will listen.

The Final Word

Contract optimization will not solve all our problems, and the idea of a perfectly frictionless contract is a non-attainable myth. There will always be redlines. But perfection is not the goal; improvement is the goal. University contract shops, which are frequently criticized for causing delays in the entire research startup process, are being forced to waste enormous amounts of time deleting these no-gain boilerplate clauses. The power to make the change often lies with sponsors and CROs; universities also originate a vast number of agreements, including subawards, collaboration agreements, data sharing agreements, and material transfer agreements. Even when we cannot make these changes ourselves, we can engage each other in rational conversations and strive to normalize the idea of design thinking and contract optimization. This is not just a contract team problem; these improvements will benefit all stakeholders