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‘Hard’ and ‘Soft’ In Contracting

December 17, 2009

In recent weeks, I have been hearing frequent mentions of ‘hard’ versus ‘soft’ aspects of contracting. The difference seems to be between those terms that are characterisitic of legal and financial risk allocation, compared with those that have more to do with aspects of contract governance and management.

Historically, many lawyers have taken the view that they focus on the ‘hard’ stuff and that the business concentrates on the soft elements. But this has started to change as all those involved with contracting start to grasp the increased importance that the contract has in the broader aspects of relationship success.

A new thought was introduced to me today by complex project expert Dr Andrew Humphries, who asked what consideration has been given to the ‘symbolic value’ of a contract. His point was made in respect of some work he is doing on a long-term trading relationship in which the parties feel better outcomes could be achieved. He has identified issues of insecurity that are constraining the commitment of one party. Like so many relationships, a core issue is around trust – and in this case, he feels that the absence of a contract is part of the problem.

Contracts can and should offer a basic security, part of which is explaining the conditions under which they may be amended or terminated and the results of such termination.  The need for these open and honest discussions has increased post-recession. The last year has undermined many relationships, as the more powerful party has often imposed unilateral changes in the terms.

2010 will see a growing interest in some of the ‘soft’ elements of contracting, as we seek to restore trust in trading relationships that have been battered by recent events. It is an interesting challenge for contract experts everywhere to rethink some of the fundamental terms and the way we approach defining long term relationships.

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