Support successful collaboration from the start and build trust between parties by co-creating mutually beneficial and legally robust contracts.
A contract is a body of promises that two or more parties agree to make legally binding, i.e if those promises are violated, the injured party gains access to legal (or alternative) remedies.
Developing shared understanding about needs and expectations is essential for successful collaboration.
While negotiating and agreeing on a contract, model the culture of collaboration you want to achieve, and build a positive relationship with the other parties involved.
This pattern refers to contracts relating related to collaboration around any business transaction between an organization and other parties (e.g. employees, consultants, service providers, shareholders or customers). It is especially relevant for contracts that have a significant influence on the future of an organization or one of its partners, such as:
- employment contracts and contracts with external contractors or consultants in support roles (including any agreement that results in a change of remuneration or working hours)
- contracts governing collaboration with customers, vendors or service providers
- shareholder agreements
Note: Many agreements about collaboration within an organization do not require dedicated contracts, as they are already governed by or subject to existing contracts.
Success criteria for contract negotiation
When negotiating a contract, ensure:
- shared understanding of the reason for the collaboration, as well as the intended outcome and important constraints
- all parties understand what is expected of them
- all parties affected by a contract are involved in creating the contract and enter it voluntarily
- expectations are realistic
- the agreement is beneficial to all parties
- everyone intends to keep to the agreement made
If for any reason one or more of these criteria cannot be fulfilled, it is probably wise to not proceed.
Co-creating the contract
The way a contract is negotiated can significantly contribute toward building trust between parties. Approach contracting from the point of view of making an agreement between partners, not adversaries: co-create the contract, tailor it to its specific context, and ensure it is legally robust.
- the contract should include all expectations of the parties involved, each explained with adequate detail
- use clear and simple language that all parties can understand, and be unambiguous about legal consequences
- if you need to use specific technical or legal terms a party might be unfamiliar with, explain them in a glossary that is part of the contract
- consult a lawyer who supports the culture you aspire to and is competent in the field if business you are negotiating
When Co-Creating a Contract:
- ensure all parties have a delegation that includes representation for all affected domains (e.g. not only sales, but also development / production / support, etc)
- explicitly describe the culture you want to develop, with consideration for common ground and any cultural differences between parties
- state the reasons for the proposed collaboration, and transparent about expectations and needs of all parties
- disclose all relevant information (if necessary under an NDA)
- agree first on terms of the relationship and expectations to all parties, and then consider how you can make them legally robust
- compile a list of specific laws and regulation the contract needs to comply to
- negotiate in several iterations, allowing time to consider implications and propose amendments
- keep minutes of each meeting to reduce the potential for misconceptions
Support The Full Lifecycle Of The Collaboration:
Any contract can be changed at any time, provided all signatories agree. However, it greatly reduces the potential for conflict later if you consider the full lifecycle of the collaboration in the contract:
- make provisions for successfully getting started by defining on-boarding procedures
- have a probationary period, where all parties can try out the collaboration, and a clear protocol for how each party can terminate the contract during the probationary period
- define and build into the contract regular review meetings where signatories come together to share learning and decide how the contract might be amended to adapt to changing context
- include procedures for breach of contract
- consider making available alternative means for dispute resolution, e.g. mediation, conciliation or arbitration
- consider limiting the contract to a fixed term after which the contract expires and can be renewed if required
Every contract influences the culture of the collaboration it governs, even when it appears to only describe what needs to be delivered:
- intentionally create the culture of collaboration you want to see by including expectations on how things should be done
- align the contract to the organizational culture (of all parties) and to legal requirements
- build contracts that enable and encourage accountability
If you find that standard contracts in your industry are misaligned with the culture you want to create, build your own repository of templates for contracts and clauses and consider sharing it with others, so that you can leverage past experience when creating new contracts.