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The Purpose Of A Contract

November 18, 2009

Today I attended a presentation on ‘quality by design’, delivered by Rebecca Vangenechten of Siemens Life Sciences.

The session got me thinking about how we would embed quality by design principles into contracting. And I realized that there is no consensus on what ‘quality’ means in terms of a contract. Is it to do with design and layout? Completeness? Legibility and clarity? Its effectiveness in protecting the drafter? The extent to which it generates successful results? And without knowing quite why we are doing it, how can we be sure that what we are doing is of real value and quality?

So I have a challenge for you. Without any sense of what is ‘good’, we cannot determine whether a contract – or the contracting process – is ‘fit for purpose’. And that seems to me a serious omission. It also explains why we struggle to demonstrate and describe the value of the contracting process. I need your help in fixing this problem.

It is time for the contracts community – contract managers. lawyers, sourcing professionals – to define what ‘quality by design’ means when it is applied to contracts. To get us started, I posed the following question to some of IACCM’s senior members:

“I am listening to a presentation on quality by design and it strikes me that it would be very helpful to apply that concept to contracts.

However, to do so we must define what we mean by ‘quality’ in the context of a contract. In most cases, quality is determined in the context of outcomes or outputs. What do you think these are in respect of a contract; for example, the avoidance of unpleasant consequences? The enablement of a successful trading relationship? …..

If we can agree quality indicators, we will be able to determine appropriate measurements that in turn could drive benchmarks and improvement.

So what are the quality indicators for a contract, in your mind?”

I received a couple of answers and they illustrate why this should be a key issue for us. I share these inputs with you – but please add your comments so that we can consolidate the thoughts of our community and develop an answer to the very important question ‘What is the purpose of a contract?’

“Quality contracting results in no surprises for either party.  The customer requirements and vendor commitments are fully aligned and both parties have one and same expectation of what contract compliance or fulfillment looks like.  The outcomes or deliverables for the contract (flowing both ways) are objective and measurable.  There is no gray area or white space to be debated at a later time.  New players coming into the engagement mid-stream can read the contract and understand clearly what the obligations and expectations of the parties were at signing and are going forward.

Well over 80% of the disputes and disconnects I see are due to poor scope language.  And that is not just referring to the SOW, for scope requirements can be in any number of documents.  The standard I use is a six sigma concept (at least that is where I was introduced to it) of goals or deliverables being SMART.  SMART stands for deliverables that are

  • Specific criteria for success or compliance — not vague, but focused and clear
  • Measurable — measures that result in any 3rd party, not familiar or close to the deal, can determine objectively whether a requirement has been met or not
  • Aggressive but achievable
  • Relevant to the strategy or goal
  • Time-bounded (there is a due date)

Certainly, most contracts have these characteristics imbedded.  The biggest issues, in my experience, are around S and M of the acronym. “

And a member in Italy suggested that: “Thought it is really difficult and it is even down to how we do measure the success of a negotiation.
 
I’ve been pondering what could be an objective criteria of a good quality, though I couldn’t find any applicable world-wide. For instance, let’s consider the number of disputes once a contract has been signed. I’ve been engaged to negotiate a 3-yrs agreement of ca 7$75M USD ending up with terrible Ts&Cs (anyone on earth would have considered of poor quality) though we didn’t have any issue w/ the customer for more than 5 yrs. At the other extent we had a smaller value agreement (ca 25M over 2 years) that was almost including standard T&C for my ex-company: after few months we were close to go to court. In fact the  attitude to use contract and to be litigious it really varies from culture to culture….
 
So if anyone has some bright ideas, I will be happy to implement them in my team.”

Please add your thoughts. And thanks, Rebecca, for inspiring the question!

35 Comments
  1. Tim,
    Great question!

    I have deliberately replied without reading the other emails on this subject, so there may be some repetition, I wanted to come at this with a brainstorming blank slate!

    A contract is an agreement, a bargain, for an exchange of value. A contract document is an attempt to encapsulate the agreement in writing. I wonder what % of the agreement made is accurately encapsulated in writing? There is probably no way to measure this. But it has occurred to me in the past that each party to the (verbal) agreement will have a view on what has been agreed, and that this is highly unlikely to be a 100% match with the other party (in a complex contract). This is because each has expectations, interpretations, and (as we know from NLP, their own ‘map of the world’). So there is a level of ambiguity in the mix, which is worked out using ‘relationship’ and even change procedures.

    I once worked as a contract manager on a complex software development contract with UK government, worth many millions of pounds. I was asked to work on it because it had the potential to end up in the courts. The reasons for this were that: 1. The (very large) contract document set was badly drafted in that there were hundreds of ambiguities (‘the xyz module will work efficiently’… what does THAT mean?), each of which we were being interpreted by the client in the most favourable possible way to the client which happened to be the most expensive way for the developer. And neither party really knew what the original intention was.

    As we know, lawyers often argue (reasonably) that ambiguity must be removed from contracts (though they are not always around to work through the 200 pages of Statement of Work/Technical Specification, which tends to be where the expensive ambiguities lurk) and MD’s/CEO’s want the contract signing by Tuesday night so that it can be announced and included in the sales results.

    So I think that in complex contracts, if we are realistic, we are going to have a % of ambiguity. Can we measure that? The lower the %, the better the contract (in that respect).

    If we accept that there will likely be some % of ambiguity, then a successful contract would perhaps anticipate that fact, regard it as a joint issue, and have an equitable process/mechanisms to deal with it, through governance and ultimately fast and cheap dispute resolution, if sensible agreement can’t be reached.

    Why do contracts not contain clear success measures, up front, clear criteria that both sides agree that if they are met, the deal was a successful one? We can get caught up in: ‘measure what you can, and penalise that!’, which is why we end up with measuring endless service levels which do not reflect real satisfaction of the client.

    I think there is a difference between measuring quality of a ‘contract’ and measuring quality of a ‘relationship’. Perhaps measuring the quality of a trading relationship (series of contracts) is a more valuable measure?

    Hope this helps the debate!
    Paul

    • Paul, thanks for this – but isn’t this suggestion that ‘it is alll really very complex and every case is different’ exactly what frustrates the rst of the business and keeps us in the dark ages of the mediaeval guild system!

      I do understand your comment, but surely there must be some basic requirements that would make a contract ‘fit for purpose’? Or more importantly , their absence would make it unfit for purpose! After all, anyone can agree anything WITHOUT a contract, so the fact we decide to have one must be for a reason – mustn’t it? If it is just a pointless habit, we should stop doing it!

      So I think we agree it is not pointless. And all contracts, regardless of complexity, have some common features. For example, it is created because independent parties wish to enter into agreement with each other to secure some form of mutual and individual benefit. The achievement of that benefit incurs certain obligations and the contract is a written memorialisation of the agreement. In its initial (draft) forms, it can assist in ensuring that negotiations have been thorough and that both parties understand the nature of the commitments that are being made and the benefits being sought. In its final agreed form, it is to assist in a) its proper implementation and b) as a basis for subsequent discussions regarding change or amendment and c) to assist in resolution in the event of disagreement or a wish to terminate at some future date.

      Even a definition as basic as this would start to enable answers to the question ‘is the contract fit for purpose?’ because you could apply quality criteria to individual agreements; you could have stakeholders give their scoring; you could monitor the frequency with which your contracts had not in fact resulted in clarity, or had not assisted in the management of change …. and indeed, we could then help companies benchmark the relative quality of their contracts, based on the percentage meeting the basic criteria for good performance.

  2. Sterling Whitehead permalink

    I haven’t seen SMART applied to contract design, so I’m a fan of this post.

  3. Happy to have added to such inspiring thinking…
    Will not attempt to take part in this discussion, will stick to quality for drug products, sounds much less complicated.
    Thank you Tim for so successfully moderating the last two days at the 3rd Annual Contract Manufacturing Conference in Pharma and Biotech in London.
    Rebecca

  4. Henrik Lando permalink

    Let me add an economist’s perspective which you may perhaps regard as so simple as to be obvious but which I think might be a fruitful place to start if the aim is to develop metrics for ´good contracting´.

    A good contract is one that maximizes the value created in the relationship it governs. This means that the contract creates commitments (the very purpose of a contract) that establish an optimal allocation of risk and incentives, at an appropriate cost of conflict resolution. The establishment of optimal incentives should be viewed in a broad sense as ncluding the incentives for collaboration, and hence including the extent to which the formal contract supports the informal sets of obligations and rights (commitments), which one might denote the implicit contract.

    More precisely, the good contract is one that balances not only the concerns for creating incentives (of various kinds, including e.g. the incentive to invest resources into the relationship), allocating risks and avoiding costly dispute resolution, but also the concern for lowering drafting costs. So an optimal contract is necessarily less than perfect; the aim is to find the proper level of completeness, taking negotiating, drafting, and even reading costs into account.

    My point is that this way of looking at contracts could perhaps form a framework from which to proceed.

    -Henrik

    • Henrik, thanks so much for this excellent summary. I think your key point is that of ‘maximizing value’. I note you mention this in the context of a relationship. Does this imply a distinction betweeen contracts that require relationships, versus those that do not (eg a one-time transaction)?

      • Henrik Lando permalink

        Tim,

        Yes, I think there is a very important distinction here. When a contract requires a relationship (i.e. when performance is hard to describe beforehand or when performance is difficult to enforce through legal means), the question arises how the explicit clauses of the contract can best complement the relational or implicit (norm-enforced) contract. For certain, the (value maximizing) explicit clauses must, when a relationship is desirable, respect psychological factors of the relationship. So the question becomes how the explicit contract can sustain the implicit contract such that the most value can be gotten out of the relationship. See e.g. this recent article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1094985
        But still, the overarching principle is value-maximization. This principle structures the whole discussion best, I think, also when relationships are involved. Even the purpose of norms of good behavior is ultimately value maximization, I would claim (with the old utilitarians).
        Best, Henrik

  5. Tim,

    I would try to work with this issue which is quite relevant and current.
    Let us consider two distinct phases related to contracts in business: contracting and implementation (or execution).
    In contracting, the contract is being created (request, negotiation, draft, signature). The measurement of quality of contract at this stage should focus on these steps (which we also call contract events). Thus, for example, a contract scoped (SMART, as you mentioned) is an indicator of quality, as well as the total time period of engagement may be an indicator of appropriate procedures.
    For the next phase (implementation or execution of the contract), I often cite an analogy that I heard from a professional contract in Brazil: the contract can be compared to a professional working in a company.
    Just as the measurement of quality of this employee should be undertaken by the results of his activities (what and how it was done), which must be related to his job description, the contract must also have activities such as renewal, adjustment, SLA control, measurement of services, documentation collection required (again, contractual events) that should be made in time and in accordance with the rules specified in the contract.
    Thus, the quality of the contract should be measured by the quality of steps taken. Which brings us also the main challenge we face with the contracts in enterprises: the management of them.

    Holp I have helped.

    • Walter, thanks for this. I think you are right that the role shifts at different phases of the process, yet of course the instrument must be appropriate for both.

  6. Art Cohen permalink

    Hi Tim,
    I’ll address two points: Purpose if a contract and what make a contract “good.”
    I have always viewed a contract as substantially a letter between business people (or companies) doing business with each other. The purpose of the letter is to establish who does what, and how exceptions to to normal process and procedure are to be handled. However such a letter also must contain restraints, requirements and procedures, generally of a legal nature, and I’ll get to that below.
    A good letter starts with a statement of purpose (the scope) and then explains the responsibilities and obligations of the parties. A good letter is one which the parties to it have a complete and unambiguous understanding. To me this means that the letter/contract must be understandable by the business parties, not only by the lawyers. One must always remember that anyone required to interpret a contract after its initial establishment may very well be people unfamiliar with its creation – there is no such thing as legislative history to explain what was meant or why a particular term was included or omitted. Therefore a good letter/contract must be one that stands on its own. I am a win-win person so I also believe thst a good contract has a fair balance of risk between the parties, and therefore a fair balance of reward. A successful outcome of the business relationship between the parties (and there is always a relationship even in a one-time deal) depends on there being a good chance of both parties meeting their goals. Both parties should share the success – this is the motivation to make the relationship work.
    Restraints, requirements and legal procedures are necessary to make a plain business letter into a contract. Generally what you want to address is what happens should things go wrong. This part is hard. If you consider all the things that could possibly go wrong and lay out the consequences and actions, you wind up with a contract the size of a Microsoft operating system. So the trick is to decide what realistically has to be described and dealt with and what generalizations you will make to cover unforseen or unexpected occurrences. Unfortunately the latter adds some level of ambiguity, hence a bunch subjective words such as “reasonable” and “when applicable.” This realistically can’t be avoided but should be minimized.
    I hope you find this view as meaningful as it is simple.

    • Art
      I appreciate your thoughts on this. As you know from our days together at IBM, I agree with your perspectives. Of course one of the trickiest parts is the determination of ‘a fari balance of risk’ and perhaps the key thing I feel that we must learn is how to balance the legal interests with the economic interests (Because they are not the same). Hence an increased understanding of – and methods – for assessing – the economics of the deal has become increasingly important. As an example, many customers today beleive they need more flexibility and to introduce break-points or shorter term agreements. I understand why they wish to do this; yet at the same time, many contracts require major up-front investment by the supplier and positive financial returns may take several years to realise. Such circumstances require shared financial modelling so that the needs and aspiration of both parties can be put on a firm – and mutually understood – basis.

  7. Zhibek Khairullina permalink

    Designing a good contract is like an artwork. Drafting a contract requires knowledge of the law, having experience, as well as creative abilities, skills to formulate precise and brief contract conditions, abilities to point out legally significant moments of the real situation.

    Art of drafting a contract is an ability to formulate its clauses so you could get serious and at the same time unnoticeable advantages before a contractor; it`s an ability in case you are forced to a concession in one of the clauses, try to nullify it with one or two phrases in the other clause; it`s an ability to formulate contract conditions in such a way so the partner wanted to strive to satisfy the agreement.

    Good designed contract – it`s a reliable guarantee from legal disputes and losses. At the same time, under certain conditions – this factor can bring certain revenues, ensure legibility and coordinated communications of parties.

    • Thanks Zhibeck. I think you have certainly captured the traditional perspective of many contract authors / negotiators. Your approach suggests that ‘good’ is synonomous with ‘protective’ and – to some extent – trickery. It is the approach that says ‘I want to have them on the hook, but have secret ways that I can wriggle out of my responsibilities or commitments’.

      I certainly understand this view; I guess a key question is whether this attitude is self-defeating. If both parties see a key goal as being to trick the other, does that really lead to a productive relationship?

  8. Tim, You have begun a fascinating and highly relevant discussion about a very complex problem. It would be ideal to develop a Contracting Guide that encapsulated the best thinking that the IACCM could muster; what a huge contribution this would represent. As an ‘outsider’ (management scientist) I am amazed that such a document does not already exist and I now realise why many important business relationships have got into difficulties.

    I think the only way to tackle this is to break the matter into pieces using these initial discussion contributions to seed each section. Then, the many experts in the Association can develop and refine them into a unique document.

    • Andrew, you are of course right that the absence of any comprehensive guide to contracting and contract management lies at the heart of the problem. We started to remedy this with the IACCM Managed Learning syllabus, but now plan to carry this further with a more formal body of knowledge. Work on this publication has begun – and we will shortly be seekig experts and volunteers to assist in its construction and development of content.

  9. Tim,
    You really made me thinking this morning and I like what you wrote, thank you well done.

    Sometimes hidden questions exist in our minds that we have been swallowing them without answers, I am shooting at the way we write our Contracts, many jargons exist and we keep stating them without real and logical thinking such as the statement “Fit for the Purpose” as you indicated in your essay, also the mis-performance, gross negligence and willful mis-conduct.

    Many words like these we are using in contracting formulation, are they measurable?

    We should challenge these practices in terms of quality where quality is a measurable subject.

    Recently I attended a presentation in Tripoli Libya organized by Weatherford on “Integrity Management –How a structured approach can help improve pipeline Integrity & Reliability” delivered by Mr. Bill REES, Business Director of PIMS of London. It was an eye opener and refurbished my thinking, if we can employ the concept of Integrity Management in contracting arena and raise the question of “Is our Contracts are Reliable?, Can we measure Contracts quality by specific indicators such as “KPI and Ali”

    If I may shift your thinking to the Integrity Management concept then it will be interested result to achieve in Contract Management.

    Eng. Mohamed Salem FAITOURI
    Acting Manager, Contracts Department,
    Mabruk Oil Operations
    Tripoli, Libya

    • Thanks for this addition and I will certainly explore the concepts behind integrity management. I believe a key question we must answer is whether our contract is to protect the integrity of our company or organization, or to protect thhe integrity of the deal or the relationship. Either may be valid, but they are different.

      Tim

      • Thanks Tim, I believe if we have a contract that protect the parties and thier deal i.e A BALANCED CONTRACT then the problem is solved.

        It is said, this is a very complex subject and we are touching base where it will be wise and fruitfull if you can summerized all our comments into one essay.

        Mohamed S.Faitouri

  10. Tim,
    You really made me thinking this morning and I like what you wrote, thank you well done.

    Sometimes hidden questions exits in our minds that we have been swallowing them without answers, I am shooting at the way we write our Contracts, many jargons exits and we keep state them without real and logical thinking such as the statement “Fit for the Purpose” as you indicated in your essay, also the mis-performance, gross negligence and willful mis-conduct.

    Many words like these we are using in contracting formulation, are they measurable?

    We should challenge these practice in terms of quality where quality is a measurable subject.

    Recently I attended a presentation in Tripoli Libya organized by Weatherford on “Integrity Management –How a structured approach can help improve pipeline Integrity & Reliability” delivered by Mr. Bill REES, Business Director of PIMS of London. It was an eye opener and refurbished my thinking, if we can employ the concept of Integrity Management in contracting arena and raise the question of “Is our Contracts are Reliable?, Can we measure Contracts quality by specific indicators such as “KPI & Ali”

    If I may shift your thinking to the Integrity Management concept then it will be interested result to achieve in Contract Management.

    Again, well done.

    Eng. Mohamed Salem FAITOURI
    Acting Manager, Contracts Department,
    MABRUK OIL OPERASTIONS
    Tripoli, Libya

  11. Zhibek Khairullina permalink

    Tim,
    My current assignment does not deal with Contracts, probably that is the reason for the traditional point of view on this though it can change if I have worked in this sphere. But still I think that such approach may take place if it is, for example, a monopoly company, a single seller in a certain industry and there are no close substitutes for the goods being produced/services.

    • Zhibek, you are certainly right that a feature of contracting is the relative power of the parties. In the examples you cite, the provider may seek to exercise their power by imposing tcontract terms that are rigid and self-serving – just as many buyers do when dealing with small suppliers or when there is abundant competition. It is unlikely that such behavior will go away – even though the advantage may be relatively short-lived because such imbalance results in a loss of loyalty and may therefore act to the longer term disadvantage of the dominant company. So even here, we must understand the impact that contract behavior will have and ask ourselves the question “Is this the outcome we wish to achieve? Is the contract supporting our business goals?”

  12. mark colechin permalink

    Tim
    A very complex subject and many different views being shared in this debate. I would like to add a couple of thoughts based on my experience as a contracts/supplier manager of large corporate deals post signing over the last 10 years.
    If you were creating a “best in class” contract guide then many of the earlier comments apply but I would also want to incorporate learning from post contract experiences by creating a checklist of potential issues (good and bad) This would help highlight and tackle aspects such as: size of the deal, the equality of the buyer/supplier going forward (who holds the power?), ease of supply (ability to change will affect attitudes), quality of both parties supplier management teams to extract the value over the term, knowledge of the contract provisions (you can have a great contract but if the teams don’t have the skills to implement it or understand it value will be lost), etc etc.
    I would want to add in the most frequently asked questions between supplier and buyers post signing and issues/escalation due to poor contracts; some example that always come up are payment for services – over complicated, how does it uplift year on year, what are we paying for? How do we partner to increase innovation, drive down cost and increase benefits for both parties, poor pipeline management of volumes/needs – missed deliverables and milestones, inflation and currency clauses, Intellectual property rights, Business Continuity – always poor and usually left to 6 months after contract signing. I could go on and on but my point is that if this was a comprehensive list with support material showing type of deal, size etc you could focus on the key aspects to mitigate risks and drive the best value by cherry picking the right clause to suit your needs.
    I look forward to seeing the finished article! Regards Mark

    • Mark, you are completely right that many of our lessons should come from the post-award environment. After all, quality is judged by results, not simply good intentions. I think a key part of the problem is that those who create the contract are oten not accountable for its implementation and subsequent performance. When organizations are responsible for the results of their work, they become far more focused on its quality!

  13. Richard Russell permalink

    Tim, I have been pondering your excellent question for some days and now I finally get around to commenting. I find a number of further fascinating views and ideas.
    Firstly, a contract is by definition an agreement which is legally binding. As the law presumes agreements, between companies, individuals having legal capacity and certainly between companies and individuals, are intended to be legally binding, the purpose of contracts must therefore be to fulfill a legal necessity. But this legality issue is not the basis of your question. However, I am left wondering if it is primarily for reasons of legality rather than to encapsulate the value creation purpose of the “deal” that companies put their contracts into writing. Whereas, on the other hand, individuals, perhaps through ignorance, are more inclined to rely upon their oral agreement and thus have their focus on the value of the deal and less so the legality.
    Taking this hypothesis a little further, could it be that the legality focus causes buyers to draft contracts in a manner which provides the maximum flexibility to demand “satisfaction” from the seller without defining what “satisfaction” means until it is, “in the opinion of the buyer”, provided? Whilst, sellers draft contracts to minimise the legal (financial) consequences of their failure to perform? Either way, the end result fails, to a greater or lesser extent, to encapsulate the value both parties undoubtedly expect and most likely state to each other they desire to achieve from the deal.
    I am of the opinion that a “good” written contract should address both the value creation and legality purpose in at least equal measure and I propose a definition of what is a good contract which I believe fits the SMART concept.
    A “good” contract defines the respective obligations of the parties in terms of:
    1.“What” has to be provided by “Whom” and “When”
    2.“How” the “What” and “When” will be verified / measured
    3.The procedures to be followed in managing the interfaces between the parties
    4.The consequences of deviations in performance
    5.The process by which the parties will seek to resolve their differences. This going beyond “the parties shall seek to resolve disputes amicably and if not we’ll see you in court” by exploring the range of Alternative Dispute Resolution processes available to assist the parties in coming back to the original purpose
    If the contract is drafted in such a way as to fulfill these, and probably a few other, objectives the contract itself becomes the tool by which the parties establish and fulfill a constructive relationship. The devil is of course in the detail!

    • Richard, thanks so much for this. I read yor conclusions with particular interest since they closely mirror the approach we take in the IACCM Managed Learning programs, where we similarly break the contract into its component elements.

  14. I was intrigued when I followed an email in my inbox to this posting, but not to examine the quality but rather because of the title, “The Purpose of Contract”. WHile the “quality” of contracts is something I think about every time I work on one, more often at a micro level, I agree that the quality of contracts at a more macro level is a foundation to the question about the purpose – which is one that is tested every day in the world of ever decreasing resources for our legal team as well as our business team. One answer I find myself coming back to is that the process of making a contract, if done properly, results in a better business relationship. The process of asking questions, internally and with the counterparty, (and the list of questions in Mr. Russell’s post are excellent in this regard) cause each party to better understand and express their intentions in creating the business relationship and the contract – a “meeting of the minds”.

    • Ellen, your thoughts certainly mirror those of many when you talk about the impact on the business relationship. I will be writing more on this point because I think many of us struggle with knowing how to define and engineer the best relationship for the specific deal. For example, the contract drafters are frequently brought in too late or are denied the chance to have the right dialogue with the other party, so we are sometimes preparing contracts without in-depth understanding of the true goals of the other side; and of course, if we are not confident that the right discussions have been held, we naturally make sure that the contract protects us from that uncertainty … and in the process may further undermine the relationship. Achieving quality contracting demands honest and inclusive team behavior – and often that seems to be absent.

  15. Chris Manning permalink

    What a great set of comments – really thought provoking.

    I think we may be doomed to frustration here, as the perfect contract is not possible (i.e. what fits one context will not fit another, even if it is seemingly well-fitted).

    The fundamental purpose of the contracts that many businesses deal in now are to maximise value from long-term relationships and not single transactions (at least, that is where our profession’s resources are mostly deployed). As such, it is about the relationship and how the contract (and its ongoing management) can support this. This goes to cultural fit, integrity and the intra- and inter-organisational power dynamics rather than the quality of the contract per se.

    I’m not intending this as a negative response to the question as I think the issues raised and discussed are vital, my point is only that the contract is only an enabler for the creation of value.

  16. G.Su Gulleroglu permalink

    I read the comments quickly and could not help myself writing. I do agree most of the said quality indicators expressed through comments. Where a contract is an exchange of PROMISES of the parties having the necessary capacity to contract and purpose of it is to ENFORCE these promises, I think the first quality indicator required for a contract is that those promises and intention should be “WRITTEN”.(I am writing this indicator primarily since contracts can be made by orally and this conversational agreements are also legally binding and enforceable (at least in Turkiye.))

    Drafter of a contract or parties to the contract should take into consideration the real intentions while drafting in such a way that an average person can understand the context, scope and what is promised. I mean a qualified contract is a document on which the promises are easy to read and intentions are clear, not require additional interpretation.

    It should also be noted that in order to have a VALID contract, promised must not be either immoral, illegal or impossible. Every nation has its own set of rules and it differs from culture to culture what is immoral or illegal. Therefore another quality indicator directs us to require a lawyer/legal person perspective and opinion. It is generally easy to handle contracts where parties to the contract are settled in the same country or jurisdiction. However a foreign party factor brings different cultural, linguistic and jurisdiction impacts.To avoid those risks an expert opinion or advise should be taken. Shortly we can say a qualified contract is a contract read and commented by a legal expert.

    One more indicator to be sought I think, is the COHERENCE/CONSISTENCY provided within the terms and conditions of the contract. Disputes are more often arises because of inconsistencies (e.g.determining two different term or definition of a promise in a contract or addressing different delivery terms …) between the provisions.

    Taking all comments into consideration I want to repeat “GOOD FAITH” in relationships of the parties is extremely important and values a contract. (however not a measurable quality indicator…)

    Well, once I have made a contract with a company after a long negotiation period and during implementation of the project I was delighted because the contract with all its appendices was drafted so well that answers of the questions was asked thought the project was already in the contract. Maybe I can say “a qualified contract is; a legally binding and enforceable document covering all the clear answers of the questions to be asked or already asked by the parties.”

  17. Richard Russell permalink

    This week I have been in Singapore conducting a Contractual Skills training for a cross functional group of personnel from my company’s Asian business. Having this discussion fresh in my mind I posed the question on whether buyers and sellers sucessfully encapsulate the business purpose when drafting contracts. Unsurprisingly the conclusion was: only to a limited extent.
    This discussions leads me to raise 3 questions which I wonder if Tim might consider to develop, more elegantly, into an IACCM survey?
    1. To what extent would organisations be willing to conclude their sell side business under their purchase conditions? and conversly;
    2. To whatextent would organisations be willing to conclude their buy side business under their sales conditions?
    3. What is the ratio of business deals concluded based upon the purchasers proposed contract versus deals concluded based upon the sellers proposed contract? and how does this vary by industry grouping etc?

  18. K. Teron permalink

    I’m not sure if this has been covered off in the comments so far, but a quality contract is also one that is used and not just abandoned in some filing cabinet.

    Often the business owners who need to use and work with the agreements are not the ones who drafted them. There would be varying skills at the business owner level. A good contract needs to take the direct managers into consideration and needs to be user friendly if it is to be used and the full contemplated value realized.

    A contract that cannot be fully understood or is overly complex or poorly structured, no matter how good the content, is of questionable quality and not fit for purpose. It is also a waste of drafting time.

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