Friday, May 29, 2009

Today in Techno History

May 29, 1944, Colossus Mark II Became Operational

"Colossus was the world's first electronic programmable computer, located at Bletchley Park in Buckinghamshire. Bletchley Park was the British forces' intelligence centre during WWII, and is where cryptographers deciphered top-secret military communiques between Hitler and his armed forces. The communiques were encrypted in the Lorenz code which the Germans considered unbreakable, but the codebreakers at Bletchley cracked the code with the help of Colossus, and so aided the Allies' victory."


The citation above comes from:

For a more detailed discussion of WWII code breakers, see The Code Book, by Simon Singh.

Thursday, May 21, 2009

Working With Your Attorney, Part One

Once upon a time I was in-house counsel and had a close working relationship with Jim, Contracts Manager in the IT unit. One day Jim sent me a request for a contract. “Vendor is ABC, price is $2.5 million, split 40/60. Product is a custom program called Killer App.” I drew up the appropriate contract. We would pay $2.5 million, with 40% up front (not always a wise thing to do) and 60% upon final delivery (and passing acceptance tests). All of the work product would belong to us, including all intellectual property rights. My CIO signed; ABC’s lawyers reviewed it and their CEO signed. I filed the executed agreement and went to the next project.

A few days later Jim called and said “We need to change the ABC agreement.”

“Why?” I asked. “I thought they had signed off.”

Jim explained that there had been a mix-up. Our company wanted to front the money to develop ABC’s new flagship product. In return, we would receive a no-charge license and free support ad infinitum. “They want a new agreement that says they own the work product,” Jim said.

I was in a bit of a quandary. ABC’s lawyers had blessed the contract. More, I had been a business lawyer too long to simply give away an asset. I replied “What’s it worth to them?”

Jim laughed and said he’d follow up with management. Later that day our CIO called. He complimented my mercenary instincts, but directed me to make the necessary changes. I did, but I also “extorted” a coffee mug from ABC’s sales rep. I wanted something to commemorate the occasion.

I like this story because it illustrates several things, including the need to involve lawyers in the transaction process. Had I known more about the deal, I could have got the contract right the first time. I would not have an amusing story, but the companies would have saved time and money.

Jim and I took a cue from this transaction and revised our procedures. We created a standard contract request template requiring internal clients to fully describe the transaction. When in doubt, we asked for more information. The CIO also endorsed a requirement that Jim sit in on all negotiations over a certain dollar amount. I also sat in on these from time to time, with the informed consent of the vendor.

An attorney can only draft from what he/she knows. If that knowledge is flawed or incomplete, the contract will be flawed, resulting in unnecessary delay. In addition, regarding the lawyer as merely a scribe, to be involved only at the last minute, can deprive the parties of the lawyer’s experience and insight. No one will be pleased if the lawyer is asked to provide a contract “tomorrow,” and he/she replies “But you have overlooked this, and this, and this and this.”

Wednesday, May 20, 2009

"L" Is For "Leverage"

Make him an offer he can’t refuse,” is a brilliant example of leverage in negotiations, although it has two small flaws:

  • Violence is generally bad for business; and, on the other hand,

  • Most businesses are not willing to pay any price for a deal.

Rather, Vendor wants to make the most money possible, and Customer wants to spend the least. The final deal will reflect the skill, tenacity and leverage possessed by each party. In addition, successful performance of a contract may be directly influenced by the leverage retained by Customer.

During negotiations, leverage is directly proportionate to Customer’s options. The more options – the easier it is to say “No” to any one Vendor – the more leverage Customer has. I can recall when, many years ago, “negotiating” with IBM for data services meant haggling over volume discounts and service hours. There were competitors in the market, but none of them rivaled IBM’s reputation for service and cutting edge technology. With little competition, IBM had no incentive to change its standard terms and conditions.

Today there is vigorous competition in most sections of the IT market. Few companies dominate their fields, giving Customers room to negotiate. But it is all too easy for Customer to surrender that advantage to Vendor. Once Customer has said “You’ve got the deal,” Vendor has no incentive to make concessions. Better to award the contract only after the competing vendors have made their best offer on price and terms and standards and service levels and warranties, etc. Also, consider requiring vendors to comment on your standard contract terms as part of RFP. Vendors who request unreasonable changes, or an unreasonable number of changes, may be weeded out early in the process. Time spent on needless negotiation will only delay project completion and a difficult negotiation may portend a difficult relationship.

For a Customer, at least, leverage should not end when the contract is signed. If the agreement calls for Customer to pay in full up front, or at specified interval (e.g. at 30, 60 and 90 days), Customer will lose a major lever – withholding payment if work is late or not up to the agreed standards. This approach requires care if it is to be successful. Timetables and standards must be reasonable and mutually agreed. Standards must be subject to objective measurement. That was Customer will be protected against a delay of “a few days,” that turns into a few weeks, while Vendor is protected against a Customer’s decision that they don’t like (or can’t afford) the product.

Legend has it Archimedes said “Give me a lever and I will move the world.” The business lawyer might well say “Give me more leverage and I’ll get you a better deal.”

Monday, May 11, 2009

The Wordsmith Is In, Part One

Lawyers have a reputation for being poor writers. We are regarded as wordy, repetitive, wordy, given to overly complex sentences and wordy.

Some complexity in legal drafting cannot be avoided. After all, many contracts record complicated transactions.

But that does not mean lawyers should stop trying to draft contracts that are as clear and brief as possible

To that end we offer some suggestions from George Orwell. His essay, "Politics and the English Language," was first published in May, 1945.

A scrupulous writer, in every sentence that he writes, will ask himself at least four questions, thus:

  1. What am I trying to say?

  2. What words will express it?

  3. What image or idiom will make it clearer?

  4. Is this image fresh enough to have an effect?

And he will probably ask himself two more:

  1. Could I put it more shortly?

  2. Have I said anything that is avoidably ugly?


I think the following rules will cover most cases:

  1. Never use a metaphor, simile, or other figure of speech which you are used to seeing in print.

  2. Never us a long word where a short one will do.

  3. If it is possible to cut a word out, always cut it out.

  4. Never use the passive where you can use the active.

  5. Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent.

  6. Break any of these rules sooner than say anything outright barbarous.

These rules sound elementary, and so they are, but they demand a deep change of attitude in anyone who has grown used to writing in the style now fashionable.

Wednesday, May 6, 2009

"R" is for "Remedy"

A “remedy” is a tool used when a contract goes bad. Statutory law provides a set of “default” remedies, but they are far from perfect. They are designed to “make a party whole,” to deliver “the benefit of the bargain.” In most cases that “benefit” is measured in cash, and the definition of “benefit” might seem unduly narrow. In addition, statutory remedies are retroactive, and do little to promote performance of the agreement.


A contracts with B for 100 widgets, at $1.00 each. B fails to deliver and, after a ten day search, A finds C, who provides the widgets for $1.20 each. Also, because of the delay, A incurs a $20 penalty to D. How much does B owe A?

The first claim would be for the extra $20 for the widgets. A expected to pay only $1.00 each, and bid the work based on that price. A incurred the extra cost only because of B (something B would dispute). A may also want to claim the cost of personnel time and lost productivity incurred in the search for a replacement supplier. In addition, A may feel B is liable for the performance penalty.

A’s claims for personnel time and the performance penalty are problematic. Courts tend to focus on the contract price, and are reluctant to add extra costs not contemplated in the agreement. The claim for personnel time could be dismissed as a cost of doing business, and as something A could have controlled, either by making sure B was ready and able to deliver on time, or by having a backup plan. The same logic could apply to the performance penalty, unless the contract between provided that B would pay for it, or the contract contained a “time is of the essence” clause, which would allow A to argue that B should bear the costs. If A recovers only $20, after spending much time and money on litigation, A is unlikely to feel it was “made whole.”

Statutory remedies are not the only ones available to commercial parties. They are free, within reason, to fashion their own remedies. The statutory remedies exist as a default to serve those parties who do not stop to fashion their own.

In the case of A and B, A might have built in a timetable, with penalties if B failed to deliver on time. In return, B might have insisted that A have a viable backup plan, or B could have bought insurance to cover its own exposure.

The more complex or sophisticated the transaction, the greater the likelihood that statutory remedies will be inadequate. All the more reason for parties to design their own. These should:
  • Encourage vendor to perform on time and within budget;
  • Provide that timely performance will result in full and prompt payment.
A carefully crafted set of remedies will help keep the project on track. Certain approaches have repeatedly demonstrated their value:
  • Tie payment to performance, not merely to the passage of time. Pay when X is completed, not on the 30th day after the contract is signed.
  • Define “success” clearly and in terms that can be objectively measured.
  • If the project is large or complex, break it into separate phases, permitting customer to call off further work after each phase.
Other Tools:
  • Mutually agreed acceptance testing standards and procedures, combined with an opportunity for vendor to correct defects. Customer also may want the right to bring in a third party, at vendor’s expense, if vendor is unable to promptly solve the problem.
  • Warranty coverage, beginning on with first productive use, rather than delivery or installation.
Specifications, specifications, specifications.
  • What will the product do?
  • How will performance be measured?
  • When will it be ready?
  • What will it cost?
  • Who will do the work?
Careful planning can eliminate unreasonable expectations and reduce the chance of unpleasant surprises. As Poor Richard taught us: “An ounce of prevention is worth a pound of cure.”