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In the following article, Dr Sara Cullen highlights some common realities with contracts - such as the fact few people read them, few people use them and many times they are subject to misinterpretation. Sara suggests we confront these realities and take a different approach to forming and documenting agreement.

One method that IACCM has worked with members to deploy is the relational contract. This approach provides a structured and facilitated method to negotiation and results in clear understanding of shared governance and contract management techniques. Details can be found in the IACCM member library or by writing to info@iaccm.com.

Dr. Sara Cullen, Global thought leader and CEO of The Cullen Group, Fellow at the University of Melbourne, and Associate at the London School of Economics. 

Surrounding your written contract is an invisible one, the contract in your mind.  We don't memorize written contracts word-for-word and clause-by-clause.  But we know what should and shouldn't be done – and that, precisely, is our psychological contract (or PsyCon for short). 

And because a PsyCon is the perception of the contractual promises and obligations that we hold in our minds, fulfilling or breaching PsyCons significantly impacts the attitudes and behaviors that can either make a contractual relationship work or frustrate the process, irrespective of anything in the written contract. 

Dr. Sara Cullen recently hosted IACCM’s Ask The Expert live webinar titled See the Invisible Contract surrounding the Written One to understand the personal one and has also coauthored a resonating white paper with Jay Jeong titled  The 6 Myths of the Written Contract – and how to achieve breakthroughs with the psychological contract

A key question:  Are contracts written to be able to withstand multiple views and perspectives?  A good place to start is to examine the six myths about the written contract.  These myths are:

Myth 1. The contract controls the parties.

It is up to the people delivering and managing success who, post-award, determine how and if the contract is used. Many use it as a last resort to resolve disagreements, not to inform or guide

Myth 2. The contract drives performance.

Half of all organizations experience the ‘green KPIs, red feelings’ syndrome, whereby successful achievement of KPIs does not yield satisfaction in the eyes of the stakeholders.

Myth 3. People read and understand the contract.

Many people delivering results post-award are either not privy to the contract or not overly interested in it. Even if it is read, all contracts are subject to individual interpretation. It is not a question of understanding the contract; it is whether it was written to be able to withstand multiple views and perspectives.

Myth 4. The contract is managed.

We have yet to encounter an organization that has put a contract management budget against every clause in the contract. Instead, people make choices based on the time and skills they have and what they perceive to be important.

Myth 5. The contract represents a fair agreement.

Many contracts were never intended to be written based on the principles of balance and fairness, but on power and the use of it.

Myth 6. You must get the contract right.

Contracts are always incomplete, because one cannot foresee all possible events and opportunities. The effort in attempting completeness has diminishing returns.

Writing better contracts is certainly essential to break through these myths.  But successful outcomes from a contract go beyond just adhering to the written terms.  It also depends on the fulfillment of the PsyCons of the stakeholders on both sides, because, at the end of the day, people make contracts work, not the piece of paper alone.

Whether your contract is 5, 50 or 750 pages long, the issue remains the same.  Your perceptions will determine whether you are satisfied or not - not whether the contract was followed to the letter. 

In fact, following the written contract to the letter has been shown to contribute to failure.1 Over-reliance on the contract contributed significantly to failure in many deals - leading to inflexibility, over-legalistic or officious interpretations, lack of responsiveness to current issues, to name a few.  You might use the written contract to litigate, but it will be the PsyCon that is acted upon in practice. 

The value of harnessing the positive aspects of the PsyCon is to collectively rise above the adversarial nature of the written contract.  However, to get there, you must ensure that PsyCons are mutually shared and understood between the parties -- harnessed and reinforced at every turn.

Even better, I advocate for articulating stakeholders' and contract managers' PsyCons before attempting to draft a written agreement.  Then use the collective PsyCon to frame the formal contract.  This will result in a contract that reflects actual expectations, is written in a way that people can understand, is much shorter and fit for purpose, with the additional benefit of being faster to produce and designed to be managed rather than litigated.

When the parties can rely, trust, and commit to each other, the desired results (efficiency, innovation, cost savings, etc.) are not only easier to achieve, but a pleasure to achieve and brings tangible future opportunity.  When PsyCons and written contracts are aligned, traditional friction dissipates, and the contract -- instead of becoming an instrument of war -- supports all parties.

END NOTE

  1. Cullen, S., Lacity, M. and Willcocks, L. (2014) Outsourcing: All You Need to Know. White Plume Publishing, Melbourne

ABOUT DR. SARA CULLEN 

Global thought leader Sara Cullen has written 19 books, consulted to over 150 organizations, and provided educational programs to over 7,000 professionals.  She is the CEO of The Cullen Group, a Fellow at the University of Melbourne, and an Associate at the London School of Economics.  Previously, she was a National Partner at Deloitte and their Global Thought Leader for outsourcing.  Over the last three decades, she has worked around the world bringing best practice and helping contractual parties get results.

 

scullen@cullengroup.com.au

https://www.linkedin.com/in/cullen1

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