Global online terms: the potential antidote to contractual amendment

Contractual amendment (often referred to as repapering) is a common practice to deal with evolving laws, entity restructuring and periodic contract renewal.

The process is invariably painful, costly and time consuming - particularly for larger firms with considerable volumes of agreements in place. The exercise also introduces additional risks such as compliance risk (due to missing compliance deadlines) and contract risk (due to opening the door for renegotiation on terms not necessarily related to the amendment itself).

Many firms have been looking at better ways to manage the repapering process, such as the ISDA protocol, to manage multilateral contractual amendments for example. However, these usually only apply to specific amendment requirements (ISDA related repapering in this example), and often end up in bilateral negotiations if any part of the proposed terms is rejected.

Promisingly, some leading tech firms have found a solution. It involves moving certain contractual terms online, to avoid the need to amend physical contracts at all. So far, the solution seems to have received positive feedback and increased in popularity.  Firms such as Meta and Twitter have implemented online Data Processing Addendum (DPA) and started to roll out to various legal teams.

But will your firm benefit from it? The answer depends on the type of firm and the volume of contracts it has. Below we explain how the solution works, its benefits, and key considerations before adoption.

How does it work?

Essentially, the approach will store contractual terms under a global URL and incorporate the URL into various relevant physical contracts. In this way, content hosted in the URL can be amended by the hosting party when needed, without having to modify the physical contracts. The more agreements adopting the URL, the less physical contractual amendment required in the future.

Below is a simple example of how the approach may look:

Effectively, this proposed solution looks to “escape” from repapering, rather than look for ways to streamline the process, tackling repapering from a completely different angle.

Cross-cutting terms such as data privacy terms and intellectual property provisions tend to be the most popular to be moved online. This is due to such terms generally referencing laws and regulatory requirements that do not leave much room for negotiation. And parties to the agreements usually choose to accept such terms without the intention to debate.

The benefits

The benefits of this approach are clear:

Physical contracts won’t have to be amended anymore, reducing legal burden for both the firm and its counterparties once and for all.

Compliance and contract risks are minimised as negotiation opportunities are kept to a minimum - as long as the party maintaining the URL makes sure that necessary updates are made before the regulatory deadline.

Global online terms should introduce a more unified legal language, which will help drive consistency in legal documentation.

Knowledge sharing is enhanced, as smaller, regional offices of the firm are now able to capture the latest terms without the need to produce something from scratch.

The challenges

As clever as it sounds, this approach comes with its barriers and challenges, which should be taken into consideration when a firm decides whether to adopt it.

Only larger firms with a considerable number of contracts tend to find the approach materially beneficial, due to its scalability. Even then, not all terms can be moved online.

The move to replace existing terms with a URL, is an amendment exercise itself - thus, it is best to proceed when there is an existing repapering need.

Counterparties might dispute that their legal position is weakened, as the party maintaining the URL content holds the sole power to change the online terms. It is therefore crucial that the firm prepares a defensive position (such as pre-update notification to counterparties) and in the more challenging scenario, a fallback, should the counterparty refuses to implement online terms.

The timing for adoption, the selection of terms and contracts, as well as the mechanism for maintenance, will depend on the specificity of the firm, and their agreements with counterparties. But firms with a high volume of contracts are already starting to embrace global online terms, and we fully expect that this will only increase as the benefits in most cases outweigh the challenges.