Since a contract is usually a complex legal document, this proportion makes sense. Still, the distribution of responsibilities also places a heavy workload on your legal team. This is sometimes unnecessary, as non-legal employees with a basic understanding of contract terminology can usually carry out simple tasks themselves, thus speeding up your contract workflows.
If faster, more efficient workflows sound appealing, you’ve opened the right article. Read on to learn some of the most common abbreviations and acronyms used in contracts and find out how your company can benefit from having more legal-savvy employees.
Why knowing legal terminology is vital for successful contract management
In a nutshell, better business-wide knowledge of basic legal terminology improves communication with your legal department and ultimately saves you time and money. Here’s how.
Enhanced negotiation processes and results
When they understand legal terminology, the sales department and contract managers know what’s possible and what’s favorable, so they can offer the best conditions for all parties in negotiations. Without this knowledge, managers risk agreeing to terms that aren’t beneficial for the company or may be just impossible to comply with.
Mistakes at the drafting stage can have long-term effects. It took years of frustrated cooperation before Dell and FedEx finally came to acknowledge the flaws of their traditional supplier contract. The two companies reviewed and changed the contract by writing down each party’s expectations and relationship-management processes. The updated agreement reduced costs and scrap by 42% and 67% respectively.
When they’re comfortable with contract terminology, non-legal managers can prepare more transparent and comprehensive drafts, which reduces the risks of misunderstandings, lawsuits, and profit loss.
The importance of good drafting becomes obvious when you look at the consequences of getting it wrong. For example, Warhol’s Foundation lost $7,2 millions to lawyers for the estate of Andy Warhol because of confusing guarantee terms.
Better contract execution
Finally, with a better understanding of contract terms, employees responsible for fulfilling those terms are less likely to make mistakes. They can carry out their duties exactly as the contract states and can also check that the other side fulfills its part of the obligation.
The benefits are clear: when employees engaged in contract management understand the basic terminology of contract law, they can communicate more effectively with your legal department and ensure the best possible outcome of every agreement.
With this in mind, let’s look at some of the most commonly used abbreviations and acronyms in legal documents.
Common contract acronyms and abbreviations
Legal terminology is not limited to abbreviations, but abbreviations create the most confusion when a reader sees them for the first time. This is why decoding abbreviations is often the first step to understanding a contract before moving on to more complex concepts and clauses.
Here’s a list of common abbreviations your employees should probably be familiar with.
ISO – International Standards Organization. This is a non-governmental organization approving international standards in areas such as quality management, IT security, and health and safety. Usually, you’ll see the ISO acronym before a standard number, such as ISO 9001 or ISO 27001.
IDIQ contract – Indefinite delivery, indefinite quantity contract. This is a type of agreement according to which a vendor should deliver goods or services in indefinite quantity for a fixed time. The parties specify a maximum and minimum quantity in terms of the number of goods or cost of service, and the exact amount will lie somewhere within these limits.
MOU – Memorandum of understanding. This is a formal but non-legally binding agreement that summarizes and explains plans for cooperation. An MOU marks a step up from a gentleman’s or handshake agreement. It’s usually the first step toward a legal contract as it provides a guideline or roadmap of each party’s responsibilities and requirements.
SOW – Statement of work. This contractual document explains terms related to project goals, timelines, liabilities, responsibilities, and scope of work for all employees involved in contract signing, management, and execution. An SOW can also be a subsection of a contract.
NDA – Non-disclosure agreement. This is an agreement between an employer and an employee or between a customer and vendor, supplier, or contractor that forbids sharing confidential information with third parties. If one party reveals sensitive information that jeopardizes a business, the other party can take legal action and is eligible for compensation.
EIACA – Employee invention assignment and confidentiality agreement. This is a contract that grants an employer ownership rights for an employee’s work. This contract makes it easier for companies to patent intellectual property as inventions, ideas, and products of the organization.
CTA – Contractor teaming arrangement. This is an arrangement between several contractors to complete an order or provide a solution they cannot handle independently. Contractors generally use this type of agreement for complicated projects ordered by the government and its agencies, such as NASA.
CIF – Cost, insurance, and freight. This is an international shipment agreement according to which the seller covers all carriage-associated costs, including insurance and freight, while transiting cargo. The buyer is responsible for unloading costs and delivery charges once the shipment reaches the port of destination. A CIF agreement only applies to transportation via sea, waterway, and ocean.
JIT – Just-in-time. This is an inventory management system which means that the supplier delivers the exact quantity of goods or raw materials needed for the buyer at a particular time to avoid storage. For example, a company can supply a precise amount of wood to produce a hundred chairs in a week, which is the maximum capacity of the furniture factory (the buyer).
EPA – Economic price adjustment. This is the process of changing prices on a US federal contract in accordance with circumstances defined by clause I-FSS-969 or clause 52.216-70.
This is just a selection of abbreviations you or your employees may come across when working with contracts. Of course, there will be many more that are specific to your area of work or even your company. This is why it’s useful to create a company-specific knowledge base for the types of contracts you use.
Contract management systems such as AXDRAFT’s CLM are a great way to get started, as they usually offer a knowledge base and clause library management features. An easy-to-use tool will help your employees work more effectively and save them from bothering your legal team with minor issues.
A basic understanding of legal terminology is essential for successful contract management. When your employees are familiar with common clauses, terms, and definitions, they can communicate better with your legal team and negotiate, draft, and execute contracts more effectively.
Management and dissemination of legal terminology becomes much easier when you automate workflows and use software like QuickDocs: a fully self-service solution that provides contract templates, speeds up drafting, and reduces mistakes. Check QuickDocs or sign up for a free AXDRAFT CLM demo to feel the benefits of automated contract management.