In the first of a series of blogs Haward Soper discusses his doctoral research on commercial contracting and the nature and importance of cooperation in making contracts work.
Having spent the bulk of a thirty-five year career in commercial and contract management, running risk management, tender approval, contract analysis and negotiation and dispute management, I retired in 2014 and decided it was time to get that PhD which had eluded me in the early 1980s. By then the commercial contracting landscape had changed considerably, evolving from a transactional, order-by-order, in-house, way of doing business to one in which contracts resemble mini-firms, and may be multi-site, multi-disciplinary, medium or long-term, with what one commentator (Zoe Ollerenshaw) describes as a “thick web of interfaces”, and involve one party having access to the records, property and premises of another.
Many lawyers, academics and practitioners, believe that there is a gap between commercial practice and legal reality. That gap is expressed in many ways. One is a reluctance by businesspeople to use the law or reach for the contract. Another is that commercial players tend to try to make contracts “work”, not to the black letter, but to an outcome. My research supported this, in showing that, even when behaviour by one party is appalling, termination is not regarded as a plausible or desirable option.
As part of my PhD I surveyed hundreds of contracting experts, drawn globally from various disciplines including project management, sales, procurement, and legal to obtain their views on how to make these contracts work. They included a former CEO of a FTSE company, a former Executive Vice President and a Vice President of an oil supermajor, partners in City Law firms, the IT manager of an internet gambling company, managers in a University estates department and a psychedelic music festival organiser among many others. Their attitude was well summed up by one opportunistic former direct report:
Much like you, I enjoyed a good fight in the early part of my career. More recently, I have learned the value of collaboration and am always now seeking to have the other party working for / with me.
This is, of course, all very admirable. My quest was then for the how. How do you achieve cooperation? What is cooperation? Is it desirable? What I was told was that good communication between the parties, timeous and accurate information flow, solid formal and informal governance, and reasonable attempts to solve problems and disputes (constructive engagement) are essential to successful performance. In this, experts use both hard and soft elements of the contract.
The hard elements include the “contract” which few want to use and that, I infer, means the “terms and conditions”, the “legal” elements. The other hard element includes scope, objectives, risks, and governance and there is a clear desire for clarity in these elements. As one respondent says it allows “service expectations, delivery, management information and costs to be discussed openly”.
The soft elements also comprise two types. One is the informal element of governance and deal-making. The other is informal relationship-building. Relationship building underpins success by helping each party to understand others’ drivers and opinions and ensures that formal and informal channels of communication are kept open and used appropriately. Informal channels, which work both in having “boots on the ground” and in social events are equally valuable in management terms; if not easy to describe in legal principles.
I tested these opinions by exposing respondents to real-world case studies, developed from real, adjudicated cases. I asked them to tell me, in both scaled and open responses, how they would solve the problems and how they would like to see the law or the contract support them.
The themes from the case studies disclose a marked reluctance to use punitive measures or to terminate but see value in fast track dispute resolution, negotiation, communication, and professional governance. These require constructive engagement that the parties talk, communicate, and work together to find the cause of the problem and agree solutions. This requires time and effort, as parties must make proper endeavours to find space and time to consider and unravel issues and to put the lid back on the can of worms. This underlines the conclusion that respondents are more interested in performance than in revenge, the task is about making the contract work.
For my next blog I will consider reciprocity/tit-for-tat, the bedrock of much economics research, suggesting that, in the real world, this does not figure in the thinking of sophisticated professionals managing significant contracts.