Standard Contracts – Yes or No?
“Beware standard contracts!” That was the exhortation from John Jorgensen in his response to one of my recent blogs. The comment reflects an on-going tension in the ‘should we, shouldn’t we’ debate over standard forms of contract.
In my opinion, standard forms should generally be welcomed. It is the way they are used that tends to be the problem. For example, this note of frustration came to me recently from a member of the IACCM management team: “We have spent hours discussing the terms, then right at the 11th hour someone from Procurement has appeared with a standard agreement that reflects none of our conversation. I would understand if Procurement had been excluded, but the conversations have actually been led by a senior person from that function”.
What this reflects is a use of standards without communication; indeed, you sometimes wonder whether large organizations impose standard forms as a safeguard against ineffective internal process. In this case, they can reflect a mentality of controlling disaster even at the expense of frequently undermining possibility.
Why have standards? Certainly in most organizations the driving issue is control. Standard agreements deliver efficiency; they safeguard against the inevitable gaps in knowledge and business judgment; they reflect established capability, policies and practices; and without them, ‘deviation’ becomes the norm so we do not readily know when we are deviating or what the implications might be.
However, those who oppose standards point to a variety of counter-arguments. For example, standards often cause laziness, a lack of judgment; they undermine the potential that could have been achieved from a well-managed negotiation; when they are used blindly, they obscure risks. And since it is mostly large and powerful organizations that are able to impose standards, they typically reflect an unbalanced allocation of risk and responsibility.
But of course, these disadvantages are not inevitable, any more than the benefits are automatically achieved. To work well, standards must operate within an intelligent management system which ensures they are appropriate to business goals. This means those who set the standards need a continuous monitoring mechanism, internal and external, to grasp when a standard needs to change or when new or alternative forms of standard are required. This may mean adjusting specific terms or providing new term alternates; or it can mean introducing a completely new offering. The real test is whether the system delivers the right standards on a timely basis and also whether it then trains the right people in their use.
Ou rallying cry needs to be ‘Standards that enable, rather than standards that suppress’. Well, I’m not sure we’ll get too many votes for that particular rallying cry, but I am sure you get the point!