When lawyers are called upon to review a contract, they are hindered by the lack of a solid methodology to perform this task. Apart from simply reading and annotation the contract explain their observations, no proven method was developed to efficiently perform this kind of analysis.
This lack of methodology itself in part because each contract is seen as unique as regards its subject matter, the style of the author, etc.. The result is a lack of analytical framework, which limits the analysis to the sole knowledge of the analyst.
As memory is at best unreliable, this dependence on individual skills, combined with the specific circumstances applicable to each analysis, yields mixed results, as the quality of the analysis depends solely on the skills of the analyst.
Since such variation is hard to justify in a field supposedly known for its rigorous methodologies, it is important to explore new methods to improve on this lack of rigor. The « Benchmarking » technique is in this respect a very promising method.
« Benchmarking »
This analysis technique is very accessible, as the instrumentation required to implement it is quite simple.
We must first establish a reference point, known as a « Benchmark ». This “Benchmark” is a contract template with detailed and structured content which serves as a reference point. Once selected, the contract template is then used to develop a second document called a « benchmarking grid » designed specifically to record the results of the analysis. This document must include at least three columns of information:
- A first column, titled « BENCHMARK », is used to reproduce the contents of the benchmark contract;
- A second column, titled « MATCHING PROVISION(S) », which is empty of content. This area will be used to note which provisions of the analyzed contract are equivalent to the provisions of the benchmark, for comparative purposes;
- A third column, entitled « VARIATIONS/OBSERVATIONS », completes the benchmarking grid. This is where the user records the significant differences that may exist between the analyzed contract and the benchmark contract;
Once the analyst has access to the required instrumentation, he can easily fill the benchmarking grid by comparing the text of the benchmark contract and the analyzed contract.
Advantages of the technique
The main merit of the technique of benchmarking is to enable the person using it to bring his level of analysis to that of comparative analysis, which is usually richer in information than a simple linear analysis.
The comparative analysis produced from this grid compares favorably with the linear analysis for the following reasons:
- It allows the user to recompile the analyzed contract according to the structure of the template used, which allows the analyst to analyze a contract with a structure he is familiar with;
- It allows the user to see any information deficiencies in the analyzed contract, by identifying the missing provisions for which an equivalent is found in the benchmark contract. If a provision of the benchmark contract is missing in the analyzed contract, this means that there is a hole in the latter. If the missing provision is important, finding this « hole » may be important;
- Conversely, it identifies any gaps in the benchmark contract and facilitates the accumulation of any new knowledge gained from such an analysis. When the bwnchmark contract does not address one of the topics of the analyzed contract, two situations may occur : it may be that the topic is specific to the analyzed contract, in which case there is no need to import it in the benchmark contract, or, if it is a generic topic, the analyst should consider adding the topic to the template contract to make it as comprehensive as possible;
- Finally, it makes it easier to delegate this tasks to subordinates, who can then perform this task with more rigor due to the structure of the benchmarking grid and produce an easier to use final report.
Conclusion
Given the increasing complexity of business agreements, there is no doubt that the current working methods must be adapted accordingly. We believe that the « Benchmarking » technique meets the requirements of the analysis of dense and complicated documents.
Tags: benchmarking, benchmarking grid, contract, contract analysis
