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Relational Contracting: A Breath of Fresh Air or something that has Always Been Blowing in the Wind?

Let’s just say you owned a house with a garden so big that you needed someone to look after it for you. So you find a professional gardener. And (because you have just graduated from a contract management course), you ask your gardener to sign a ‘traditional contract.’

A ‘traditional contract’ (at least in this article) means a contract with hundreds of clauses supposed to cover every possible future scenario. Do you host garden parties and want that gardener to spend 8 hours on your garden that week? There is a clause for that. What happens if the gardener is sick? What happens if you don’t want the gardener in your garden between 2 pm and 4 pm on Tuesdays because you have clarinet practice? What happens if your clarinet practice changes? What if you have 3 feet of snow? What flowers do you want planted in the spring? Our ‘traditional contract’ needs clauses for every one of these scenarios.

Crazy right? Well … these contracts are everywhere. They are based on the infeasible premise that every future scenario, market condition, technological advance, and <insert anything else here> can be predicted. So we put tons of effort into this now monstrous ‘traditional contract.’ And anything you put tons of effort into ‘feels’ important. Until it becomes the only thing that matters.

There are lots of different contracts and lots of different relationships that exist between the two parties who have signed a contract. But the ‘traditional contracts’ I am describing above are those where the contract IS the relationship.

‘Traditional contracts’ are essentially written in a way that makes auditors and lawyers happy. Not engineers, designers, planners, or service providers that need an element of creative flexibility to deliver the best results.

‘Traditional contracts’ are all about ‘protecting’ the client. Instead, they tend to only result in harm. Each clause implies punishment triggered by ‘non-compliance.’ This results in a document full of ‘the contractor shall …’ statements that feel like laws as opposed to guidance.

When I have worked with parties handcuffed to traditional contracts, two things always happen. The first is the client lamenting that the contractor is never ‘proactive’ enough. They only focus on the ‘bare minimum’ and never go beyond the clauses. Our now frustrated client then tends to ‘turn the screws’ on the contractor.

The second thing that happens is the contractor complaining about the inflexible client who makes them comply with every part of the contract even if the situation has changed to the extent that original clauses are now irrelevant. They also complain about an increasingly legalistic and adversarial client who demands more and more from a now exhausted workforce that racks up overtime complying with overly onerous clauses and drafting 300-page progress briefs every week.

This happens. Every. Single. Time.

So what is a ‘relational contract’ and how is it different? In a nutshell, a ‘relational contract’ formalizes a relationship between two parties that is based on trust and mutual benefit (… yes, these are things). A ‘relational contract’ might only cover how much money the client pays the contractor for specific periods of work. But the contractor and client are the ones who continue to work out what needs to be done, how they are going to do it, and otherwise work in a true, mutually beneficial partnership.

Relational contracts have been used by humankind for millennia – we just haven’t always given them a name.

Do you want your gardener to make your garden beautiful? Pay them to come over 2 hours a week and see what happens. Garden still needs more work? TALK TO YOUR GARDENER. Pay them for 4 hours of work a week. Having a garden party two weeks from now? TALK TO YOUR GARDENER SOME MORE. Ask them to garden for 8 hours that week. And so on. Most humans want to please others. If only you trust them.

Do you think the same gardener will feel like a true partner if you make them sign a 200-page contract and constantly review instances of potential non-compliance? Hell no. And how that gardener feels will directly impact the quality of the effort he or she invests in your garden and how pretty your tulips look (if you have any).

There is plenty going on these days in relational contracts both in the commercial and governmental domains. And the results tend to be amazing.

All this ‘trust’ stuff is particularly relevant to making things highly reliable and high quality. Why is that? Because when we focus on compliance, we build things that pass a test … even the mere idea that a particular design has weak points is treated like an allergic rash. And every design has weak points. So instead of dealing with them early in the design process, we deal with them as a full-blown catastrophe when they fail in the hands of a user.

When we work together with our vendors and suppliers in an atmosphere of mutual trust and benefit, we are free to talk about those same design weak points in a ‘safe’ and empowering way. This means we can design them out of our system when it is still cheap and easy to do so.

So why don’t we see relational contracting more often? Fear. Risk aversion. Lawyers and auditors running the organization. Lack of foresight. Because this has been how we ‘always’ do it. Sounds too much like a ‘hand-shake agreement.’ Stroke. All of the above. And plenty more.

The reality is if you want to make something amazing, and you need someone else to help you, then you need trust. And the ‘traditional contracts’ I talk about above aren’t the way to make that happen. We keep ‘learning’ this repeatedly.

What about you? Do you have your own experience when it comes to contracting? Please let us know!

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