Commercial Contracts Must Adapt to Rapidly Changing Business Realities
Translated & summarized from Calcalist by baba
Commercial contracts must evolve beyond simple transaction records to actively manage change and uncertainty, according to lawyer Assaf Lapid. Rapid shifts in technology, regulation, and geopolitical risks mean deals are increasingly affected by factors arising after signing. Traditional contracts are insufficient, requiring new mechanisms to address evolving operational realities and potential disruptions. The focus is shifting from predicting every event to building adaptable frameworks for managing inevitable changes and potential exits.
The story in 6 lines · by baba
- Commercial contracts must transform into mechanisms for managing change, risk, and uncertainty, not just recording transactions.
- Rapid technological advancements, regulatory shifts, and geopolitical instability are fundamentally altering business deals.
- Contracts need to address how technology, like AI, is integrated and impacts deal terms and execution.
- Regulatory compliance is becoming a core contractual element, requiring proactive management of legal changes.
- Geopolitical and economic risks are now ongoing operational factors, necessitating adaptable contractual clauses.
- Lawyers must help clients proactively identify, price, and manage risks in a dynamic business environment.
Commercial contracts are no longer sufficient as mere records of transactions, according to lawyer Assaf Lapid. The business world is evolving faster than traditional agreements can keep up with, necessitating contracts that function as mechanisms for managing change, risk, and uncertainty. Factors such as technological advancements, shifting legal landscapes, labor availability, financing costs, and supply chain disruptions can significantly alter the feasibility and terms of a deal between signing and execution.
These changes impact various types of agreements. In mergers and acquisitions, they can affect the target company's valuation and closing conditions. Service agreements may see alterations in service levels and execution costs. Development and technology contracts could see shifts in ownership and intellectual property rights. Supply, real estate, and infrastructure deals might face changes in timelines, pricing, and raw material availability. Uncertainty is now an inherent part of the deal itself, not just an external risk.
Technology, particularly AI, is a key driver of this evolution. Contracts must address how technology is integrated into the deal, whether as part of the product, an internal tool, a development component, or a third-party infrastructure. This requires a deep understanding of the technology's role, including data usage, reliance on cloud providers, and third-party code licenses.
Regulatory changes are also reshaping contracts. Compliance with new laws concerning privacy, cybersecurity, AI, and financial services directly influences deal execution and costs. Contracts must now proactively address how changes in law will be monitored, reported, and managed, including who bears the costs of adaptation.
Geopolitical and economic risks, such as wars, sanctions, currency fluctuations, and supply chain disruptions, are no longer exceptional events but ongoing operational backdrops. This is particularly relevant in Israel, where events previously considered force majeure are now part of the business environment. Traditional force majeure clauses are often inadequate for situations where performance remains possible but becomes more expensive or complex.
Lapid emphasizes that not all uncertainty should be relegated to force majeure. Contractual tools like hardship clauses, price adjustments, and phased exits are often more appropriate. The negotiation process must start with a thorough understanding of the operational facts and potential changes throughout the contract's lifecycle. The role of commercial lawyers is shifting from simply drafting fallback provisions to proactively helping clients understand, price, and manage risks, building mechanisms for deals to adapt to changing circumstances.