A NEW MINDSET ENABLES BETTER DECISIONS AND RESULTS

It has been said that the legal profession has excelled in applying a "belt and suspenders” approach to contracts, especially to risk transfer and liability clauses drafted (presumably) for one party's benefit. On the other hand, empirical research and experience tell us that these clauses are not always used in practice—at least as long as businesses resolve issues among themselves and not through legal means. In Stewart Macaulay's classic study,[1] a business person—a purchasing agent—explains the reason:

If something comes up, you get the other man on the telephone and deal with the problem. You don't read legalistic contract clauses at each other if you ever want to do business again. One doesn't run to lawyers if he wants to stay in business because one must behave decently.

The problem does not necessarily lie with lawyers, though. Many business, project and risk managers have overlooked the importance of their involvement in the contracting process and are pleased when lawyers drive contract design, drafting and negotiation. There is no shortage of reasons for this. The outcome is that contract design and drafting have become lawyer-dominated phases where the real deal is translated into a paper deal and, at worst, into legalese. In the process, many key decisions have been left to the lawyers, even in areas where business managers and subject matter experts could (and should) have made an important contribution. As stated by Deepak Malhotra, a Harvard Business School Professor, the latter are in a much stronger position to negotiate better outcomes and relationships, not just safer ones.[2]

In fact, once a contract has been drafted and signed, it often must be translated into ordinary language that ordinary people can understand. Why? Contracts are made for business performance purposes. To activate and guide that performance, the teams responsible for implementation need to truly understand the contract.

Research into companies' contract design capabilities confirms that the input of managers and engineers is needed in key areas to lay the foundation for the deal and construct

  • [1] Macaulay, S. (1963) Non-contractual relations in business: a preliminary study.American Sociological Review, 28, 55-67, p. 61.
  • [2] See, generally, Malhotra, D. (2012) Great deal, terrible contract: the case fornegotiator involvement in the contracting phase. in B.M. Goldman and D.L. Shapiro(Eds.), The Psychology of Negotiations in the 21st Century Workplace. New Challenges andNew Solutions. New York, NY: Routledge, pp. 363-98, 363-4.
 
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