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The purpose of a contract

February 7, 2017

When you aren’t sure what purpose something has, it is impossible to measure whether it is fit for purpose. Or alternatively, when it is multi-purpose, we run the risk that it does many things, but none of them especially well.

That is precisely the problem that we have with contracts. Are they instruments designed for court rooms, or perhaps they are financial assets, or possibly operational guides? Whose interests do they reflect – the buyer, the seller, individuals or functions that form part of the buyer or seller; or are they perhaps communicating the interests of third party advisers or of regulatory authorities?

The answer, of course, is that they are to some extent all of these things and hence have multiple purposes. It is this that often results in complexity or confusion, the challenge of melding multiple interests and perspectives which are themselves often in conflict. But beyond this challenge of reconciling and agreeing views, there is also the question of who they are designed for and the difficulty this generates in making them easy to use or understand. A consequence is that they really are not very good at meeting anyone’s interests and that is why so many are tempted to consign them to a drawer (or the technological equivalent).

Does it have to be this way? Certainly it is in the interests of business to think differently, because for all their importance, contracts do a very poor job. Research shows that in process, form and content, they fail to drive optimum business results – and often do not even do a good job of protecting interests in the event that litigation occurs.

The pressure is growing because the nature of what we are contracting for and the environment within which we are contracting continue to change. For the contracts professional, those changes manifest themselves in the form of ‘complexity’. But much of the complexity is again because the process, form and content is no longer appropriate.

Organizations are awakening to the need for transformation, but are uncertain about how to get started. That will be the subject of my next blog – and is also a focus of the IACCM 2017 conferences, the first of which will be in Dublin, May 8th – 10th.

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