--- name: contracts-cognition description: "Use when reading a contract for risk and constraint — clause shape, redline priority, what the contract actually binds. Triggers on 'review this contract', 'what does this MSA constrain'." status: active tier: senior source: package domain: process context_spine: [regulatory-regime, customer-segment, org-stage] recommended_for_user_types: [consultant, finance, ops] workspaces: - ops packs: - ops-people lifecycle: active trust: level: professional confidence: high human_review_required: false install: default: true removable: true --- # contracts-cognition ## When to use - A draft MSA / DPA / SOW / vendor contract / partner agreement lands and a non-lawyer needs to read it for *what it actually constrains*, *which clauses carry real risk*, and *what to redline first*. - An existing contract is being renegotiated; the question is *which clauses are now misshapen* given current scale, regulatory regime, or customer mix. - A new customer contract triggers obligations (SLA, indemnity, audit, data-handling) that need to be sized against operational capacity before signing. Do NOT use as a substitute for actual legal counsel (this skill produces the *non-lawyer cognition* that prepares the conversation with counsel, not the legal opinion), for privacy-specific review (route to `privacy-review` (P6); this skill composes P6 for data clauses), or for contract management software / e-signature operations. ## Cognition cluster - **Mental model 28 — Inversion.** *"What would force us to invoke this clause? What would force the counterparty to invoke it?"* Inversion surfaces which clauses are dormant boilerplate vs which are loaded triggers. See [`mental-models.md`](../../../docs/contracts/mental-models.md) § 28. - **Mental model 21 — Second-order thinking.** Each clause has a second-order shape: indemnity caps interact with insurance coverage; SLAs interact with operating-cost; auto-renewal interacts with switching cost. Reading clauses in isolation misses the load-bearing combinations. See `mental-models.md` § 21. - **Mental model 26 — Optionality.** Each clause either preserves or forecloses future choices (terminate-for-convenience preserves; auto-renewal forecloses; exclusivity forecloses; MFN forecloses). The cost of a clause is the optionality it removes. See `mental-models.md` § 26. - **Context-spine — regulatory-regime + customer-segment + org-stage.** Read **regulatory-regime** (J1) for floor-bound clauses (GDPR DPA terms, HIPAA BAA, SOC 2 audit). Read **customer-segment** for risk sizing (enterprise SLA terms ≠ SMB SLA terms). Read **org-stage** for what's affordable (early-stage = avoid uncapped indemnities; growth = can absorb tighter SLAs). ## Procedure ### Step 0: Frame the contract by intent Two questions before reading clauses: 1. *What outcome are we trying to enable?* (sell to enterprise, integrate vendor, partner co-sell, license IP). 2. *What outcomes are we trying to prevent?* (unbounded liability, lock-in, IP leakage, audit ambush, payment risk). Without intent, every clause looks equally important. With intent, 80 % of clauses are background and 20 % are load-bearing. ### Step 1: Identify the load-bearing clause families Five families carry most real risk for non-lawyers: 1. **Liability & indemnity** — caps, carve-outs, IP indemnity, mutual vs one-way. Uncapped indemnity is the canonical trap. 2. **Term, renewal, termination** — auto-renewal, notice windows, termination-for-convenience vs for-cause, data-return obligations. 3. **Data & privacy** — DPA, sub-processors, data location, breach notification, retention, deletion. Compose `privacy-review` (P6) for the deep read. 4. **IP & confidentiality** — work-product ownership, license grants, confidentiality term, residual-knowledge clauses. 5. **Commercial mechanics** — payment terms, MFN, exclusivity, change-of-control, audit rights. Other clauses (governing law, force majeure, severability, notices) are usually boilerplate; flag deviations but don't lead with them. ### Step 2: Inspect each load-bearing family For each family, read three things: 1. **The clause as written** — what does it literally say. 2. **The clause invoked** — *"under what scenario does this clause fire?"* 3. **The clause's tail risk** — *"what's the worst-case if it fires?"* A clause whose tail risk is bounded and small = accept. Bounded and large = redline to reduce. Unbounded = redline to cap or refuse. ### Step 3: Run the inversion check For each load-bearing clause, ask: 1. *"Would we sign this if the counterparty had 10× our leverage?"* Reveals which clauses we tolerate because of relationship, not because they're fair. 2. *"What would we want if we were the counterparty?"* Reveals which clauses are mutual vs one-way unfairly. 3. *"What scenario makes this clause matter in 18 months?"* If no scenario, the clause is dormant; if a plausible scenario exists, prioritize the redline. ### Step 4: Build the redline priority list Rank redlines by: 1. **Tail-risk size** — uncapped > capped-large > capped-small. 2. **Probability of invocation** — high-likelihood clauses (auto-renewal, payment terms) outrank low-likelihood (force majeure). 3. **Asymmetry** — one-way clauses where the counterparty bears no symmetric risk. 4. **Optionality cost** — clauses that foreclose future moves (exclusivity, MFN, change-of-control restrictions). Top 3–5 redlines = the negotiation; everything else is acceptable or backlog. ### Step 5: Validate the read before emitting Before producing the artifact, verify three things: 1. **Family coverage** — confirm each of the five load-bearing families was inspected (Step 2); silent skips mean the contract was not read, only skimmed. 2. **Tail-risk sizing** — assert every top-5 redline has a named worst-case scenario and a named cap / carve-out / refusal-shape ask; un-sized redlines fail. 3. **Counsel handoff** — check that the contract-cognition note explicitly flags which clauses need legal counsel review vs which are commercial / operational decisions; this skill does not replace counsel. All three must pass. If any fails, return to the failing step. ### Step 6: Emit the contract-cognition note Produce the contract-cognition artifact for the negotiation lead (founder, sales lead, ops lead) and for counsel. The artifact is the non-lawyer cognition that prepares the conversation with counsel, not the legal opinion. ## Related Skills **WHEN to use this** - Reading a draft MSA / DPA / SOW / vendor / partner contract for risk and constraint. - Renegotiating an existing contract at a new scale or under a new regulatory regime. - Sizing customer-contract obligations against operational capacity. **WHEN NOT to use this** - Privacy-specific deep read — route to [`privacy-review`](../privacy-review/SKILL.md) (P6); this skill composes P6 for data clauses. - Data-classification / retention judgment — route to [`data-handling-judgment`](../data-handling-judgment/SKILL.md) (P7). - Build-vs-buy / partner-vs-vendor decision shape — route to [`build-buy-partner`](../build-buy-partner/SKILL.md) (P1); P1 outputs the *whether*, this skill outputs the *what to redline*. - Actual legal opinion — route to qualified counsel; this skill prepares the cognition for the counsel conversation, not replaces it. ## When the agent should load this - "Review this MSA." - "What does this DPA actually bind us to?" - "Which clauses do we redline first?" - "Is this contract safe to sign?" - "Lies mir den Vertrag durch." ## Output 1. **`contract-frame.md`** — intent (what to enable / prevent), counterparty leverage read, regulatory-regime context. 2. **`load-bearing-clauses.md`** — five families × clause-as-written + invocation scenario + tail risk per clause. 3. **`redline-priority.md`** — top 3–5 redlines ranked by tail-risk × probability × asymmetry × optionality cost; named asks per redline. 4. **`counsel-handoff.md`** — explicit list of clauses that need legal counsel review vs commercial / operational decisions. ## Gotcha - Uncapped indemnity is the silent killer. If the cap is missing or excludes major risk categories (IP, data breach), it's the first redline. - Auto-renewal with short notice windows compounds across years — calendar the notice window the day the contract is signed. - "Industry-standard" is a marketing word, not a legal one. Push for the specific cap / term / carve-out. - Mutual NDAs that look symmetric often aren't — confidentiality term, residual-knowledge, and remedy clauses skew one-way silently. ## Do NOT - Do NOT issue legal opinions; this skill prepares cognition for counsel, not replaces counsel. - Do NOT collapse all clauses into one list; the five families carry the real risk, treat them differently. - Do NOT skip the inversion check — clauses that look fine in our shoes often look terrible in the counterparty's. ## Runnable example Growth-stage SaaS, customer is Fortune-500 enterprise, MSA draft from customer's legal. - Step 0 — Intent: enable enterprise deal, prevent uncapped liability + audit ambush + data-handling overreach. - Step 1 — Identify families: liability (mutual indemnity, uncapped on IP); term (3-year auto-renew, 90-day notice); data (DPA references but no DPA attached); IP (work-product ownership unclear for integration scripts); commercial (MFN clause buried in pricing schedule). - Step 2 — Inspect: uncapped IP indemnity → tail risk = bet-the-company (uncapped patent claim). Auto-renewal 3-year → tail risk = $1.2M locked in if missed notice. MFN → tail risk = forecloses bundle pricing across portfolio. - Step 3 — Inversion: would we sign this with 10× leverage? No. Symmetric? Indemnity is one-way; MFN is one-way. - Step 4 — Redline priority: (1) cap IP indemnity at 2× annual contract value with reasonable carve-outs; (2) reduce auto-renewal to 1 year, expand notice to 180 days; (3) strike MFN or limit to identical-SKU; (4) attach DPA before signing; (5) clarify integration-script IP ownership. - Step 5 — Validate: five families inspected; top-5 redlines sized with cap / refusal asks; counsel-handoff names IP indemnity + MFN as counsel-led, auto-renewal as commercial-led. Pass. - Step 6 — Emit contract-cognition note for negotiation lead; route IP indemnity + MFN to counsel; sales lead negotiates auto-renewal and DPA attachment.