A few years ago I closed a Division of Assets Agreement at Latham & Watkins’ Houston office. There was a lot of paper. It took us more than an hour just to sign all the originals and acknowledgements. Latham offered to messenger my copy, but I insisted on carrying it. I’ve always liked walking away with my contract, its ink still damp. Doing so makes the accomplishment more tangible. “If you insist,” quipped the associate as she passed me a banker’s box. It was two-third’s full, containing just one copy of our agreement.
Welcome to the world of mega-documents. These weighty tomes span several hundred pages. Parties’ in-house and outside counsel draft various sections and exhibits. Negotiations go on and on, with mark-ups being exchanged with such frequency that spreadsheets are needed to track them. A change in one section can ripple through the agreement, requiring further adjustments. As contracts grow and negotiations lengthen, it’s harder for legal teams to keep up.
Two particular shortcomings must be guarded against in mega-documents:
- “Silo” Defects. Big law’s typical approach to mega-documents is to deploy several associates in a divide-and-conquer style. One lawyer for this, another for that. Information silos can result—causing conflict between work product. The client assumes the partner knows the entire document well enough to reconcile associates’ work and eliminate silo defects. Yet as partners are managing more transactions, they know less about the details of any one. How many lawyers have read the whole document (from cover-to-cover)? When was the last time it was read?
- Redline Syndrome. Deltaview software identifies additions and deletions between two versions of a document. It also can encourage laziness. Partners no longer have to read the entire agreement (again and again). They can just review the changed pages. Whereas silo defects arise because multiple people are unaware of each other’s work, redline faults stem from one person’s imperfect memory. A redlined page may look fine but undermine settled clauses elsewhere. As the duration of a negotiation lengthens, so does the risk of relying on redlines.
I had the honor of clerking for Chief Judge J. Harvie Wilkinson III of the U.S. Court of Appeals (Fourth Circuit) from 1995-96. Appellate opinions can resemble mega-documents in complexity, and the author must negotiate with other judges to obtain their concurrences. Although Judge Wilkinson had three clerks, only one supported him on each opinion, thereby avoiding silo defects. Redline syndrome was addressed by requiring full reads of opinions. The Judge and clerk would sequester themselves, free from emails and phone calls. If either requested a change, the law clerk revised the opinion and printed two clean drafts. Then they started reading all over again—from the first page. Opinions were released only after a simultaneous cover-to-cover read by the Judge and clerk, without either noticing a change.
My business development group at Oxy implemented similar protections, which we called the “Lone Ranger” approach. One lawyer was responsible for each negotiation, and he or she was expected to completely understand all of the agreement’s mechanisms and how they could be turned to the company’s advantage (or disadvantage). By knowing the contract better than our adversary, we often created wealth and reduced risks.
Mega-documents reward those who make the investment to master them. Steve Jobs once said that “[t]his is what customers pay us for—to sweat the details so it’s easy and pleasant for them.” Clients should want deep engagement. Mega-documents protect nine-figure and ten-figure assets, and the stakes are too high for deficiency to masquerade as efficiency.
About the Gaille Energy Blog. The Gaille Energy Blog discusses issues in the field of energy law, with weekly posts at http://www.gaillelaw.com. Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of two books on energy law (Shale Energy Development and International Energy Development).