The Term Sheet and “Good Legal Practice”

Establishing a Standard

In regulated industries such as the development and manufacturing of therapeutics, internationally recognized standards like Good Laboratory Practice (GLP) and Good Clinical Practice (GCP) have become essential guidelines for quality assurance and process design. This mindset can be effectively applied to the legal domain: Good Legal Practice (GLP) represents a professional standard for legal support in projects and transactions.

Ideally, the implementation of such a standard is achieved through internal Standard Operating Procedures (SOPs). These define precise workflows and methodologies for specific processes, incorporating tailored tools. One of the most crucial tools in professional transaction preparation—aligned with the principles of Good Legal Practice—is the term sheet.

The Term Sheet as a Core Instrument

The term “term sheet” is omnipresent—often reduced to a template or even met with the same skepticism as the much-maligned NDA. Why outline key points when you could jump straight to the contract draft? After all, there are plenty of templates available. But this way of thinking reveals a fundamental misunderstanding.

A term sheet is not merely a prelude to a contract; it is a strategic planning and communication tool. It consolidates the core elements of a proposed transaction, offering direction for all stakeholders—not only from a legal standpoint but also in terms of business and operations.

According to Wikipedia, a term sheet is a discussion and working document that outlines the key terms of a transaction and serves as a foundation for the final agreement. But its value extends far beyond that: it is a tool for structuring the project, safeguarding interests, and identifying potential conflict areas early on.

Why the Term Sheet Should Begin Internally

Traditionally, the term sheet is drafted by legal counsel—based on what the client relays about the project. However, those who think strategically should not outsource this step. Developing the initial term sheet in-house, by the operational team itself, provides decisive advantages.

Through this self-directed drafting process, the term sheet becomes a mirror of the business model: It forces teams to engage with the fundamental questions of the project, makes risks visible, and helps expose ambiguities. The more structured and well-founded this first draft is, the more effective the legal refinement will be.

A clearly written term sheet not only helps avoid unclear expectations but also dispels the misconception that the lawyer “makes the deal.” In reality, every deviation from the original concept in the legal draft shows that the planning foundation was not yet mature. A term sheet, therefore, plays a vital role in validating the business case and ensuring its operational feasibility.

From Legal Document to Business Tool

The term sheet is more than a legal template—it is an active design instrument that allows the viability of a project to be tested and optimized early on. This becomes especially evident in three key areas:

1. Performance Obligations: Clarity in Content and Structure

Defining mutual performance obligations may seem straightforward at first glance—yet it is a frequently underestimated lever for clarifying the business model.

In R&D projects in particular, it is essential to define not only the outcome, but also the quality and methodology of the deliverables. For instance, when commissioning software development, it is critical to specify the expected functionalities, standards, and compatibilities—not just the fact that software is to be delivered.

Benefits of this process:

• Precise definition of internal deliverables and expectations

• Clear understanding of the partner’s contribution

• Visibility into performance details and sequencing

• Assessment of technical and financial feasibility

• Early identification of regulatory requirements

2. Warranties: A Measure of Quality and Responsibility

Warranties are not just legal formality—they demonstrate that the partner is willing to take responsibility for their performance. Those who address this issue seriously in the term sheet quickly realize: It’s not just about liability, but about trust, product integrity, and intellectual property.

A dialogue on warranties delivers:

• Clarity on required product characteristics

• Awareness of critical expectations for the partner’s deliverables

• Insight into the depth of the project concept

• Understanding of IP rights and usage boundaries

• Assessment of the partner’s sense of responsibility

• Early legal safeguards to secure ROI

3. Liability: Risk Analysis as a Business Tool

Liability is often approached defensively—with a focus on minimizing one’s own risks. However, addressing liability in the term sheet offers a strategic opportunity: a structured analysis of operational risks.

A well-rounded discussion on liability allocation reveals whether the business model is viable—economically, regulatorily, and ethically. Products that are too risky or unmarketable can jeopardize ROI, regardless of the contract terms.

Business insights from liability analysis:

• Identification of risks stemming from the partner’s deliverables

• Evaluation of business feasibility

• Strengthening of risk management and operational planning

• Prevention of future liabilities through proactive measures

• Criteria for evaluating the suitability of potential partners

Business Case and Contract Design: Two Sides of the Same Coin

What’s remarkable is that the topics discussed above are viewed entirely from a business perspective, with no in-depth legal analysis. And yet, this approach substantially sharpens the business case.

The term sheet serves a dual purpose:

1. It lays the groundwork for legally sound contract negotiations.

2. It is also a planning tool that creates internal clarity and makes external risks visible.

A well-thought-out term sheet drastically reduces the likelihood of future deal breakers. The collaborative development process itself leads to a deeper team understanding of the project’s structure and a more realistic assessment of the partner. If the term sheet reveals early on that a partner is willing but not capable—it saves time, money, and frustration.

Conclusion: GLP as the Foundation for Successful Transactions

Drafting a term sheet marks the first operational step toward implementing Good Legal Practice (GLP). It is more than a legal formality—it is a tool for developing and safeguarding the business case.

A well-prepared term sheet:

• Provides clarity on objectives, risks, and responsibilities

• Offers structure and orientation for contract negotiations

• Lays the foundation for a realistic and sustainable partnership

Those who view the term sheet as an integral part of project planning will see it for what it truly is: not the result of legal fine-tuning, but the essence of entrepreneurial foresight.