Although the English Court of Chancery started to interfere in and comment on contracts about 150 years ago, the contents of those contracts as well as the process by which they are formed and then used remains something of a mystery. The judges have described contract processes as ‘haphazard’, our agreement to specific terms ‘cavalier’, and risk management is too often driven by price not consequences. The battle of the forms is a common visitor to our courts and we still haven’t found a clear answer!
One way to resolve some of the legal and practical problems is simplify and organise the process of contracting.
Three Ages of Contracts
- Planning (contract inception): from idea to choosing a supplier
- Making (contract creation): from which contract to signing on the dotted line
- USe (contract operation): from first call to happy client (or dispute management).
During inception, businesses struggle with an almost overwhelming choice. In the UK construction industry there more than 100 standard forms from 10 publishers (and counting). In the land of Google there are nearly 1bn pages devoted to terms and conditions. There are hundreds of sites offering downloadable contracts of often dubious quality.
Each tasks, purchase, or project requires the paying client (who decides the contract) to balance issues such as payment, responsibilities for selection, potential risks and task management… and then choose the best contract to meet its business’ needs and brief. More often than not, the client chooses the contract it is most familiar with, or the last one it used on a similar project, or recycles something from its computer, rather than one that really meets its strategic objectives.
During creation, the client’s contract choice may be overtaken by commercial pressures. Who has the time to write, negotiate and agree specific terms each time we do business? There are considerable benefits to a one-size-fits-all ‘standard’ contract or T&C – but at the cost of creating a monster.
Standard contracts avoid decision paralysis, but discourage contract analysis. Things may be even worse when we are faced with T&C from the company with whom we want to do business. Poor processes, bullying and time-pressures may result in you signing catastrophically one-sided contracts just for an easy life, or because you don’t really believe you can change a thing.
Under English law, freedom to contract means you can decide with whom and on what terms you do business.
As the contract is used and the project proceeds, the terms of the contract are rarely implemented effectively. In the construction industry, the annual ARCADIS Global Disputes Surveys repeatedly highlight that the major causes of disputes are failures of the supply chain to read, understand and properly use those contracts (no matter where you live).
Once a dispute arises, the culture within an organisation is rarely one of ‘what can we learn from this’ and becomes one of ‘who is to blame’? Businesses need to review complaints, disputes and near-misses to learn from those transactions and decide how to do things better. For example, I worked for a company who had received a bruising multi-million pound law suit (largely paid by their insurers) but who were still using essentially the same processes and contracts that had got them into that mess.
What tools do you need to take control of your contracts and contracting; and avoid battles of the forms?