Do Your Contracts Enhance Trust or Destroy Trust?

A recent article in the Harvard Business Review notes that good contracts are designed to reinforce trust and reduce risk but that there can be a fine line between a good contract and a bad contract which destroys trust and, ultimately, increases risk. A contract that is too detailed or rigid, or one that sends mixed signals, can exacerbate the problems it was intended to preclude as it can restrict creativity and even prevent the display of good intentions.

For example, if the contract specifies a rigid resolution process that requires that all issue reports need to be reviewed by a team before being classified as either errors or enhancement requests, at which point they will be placed a queue for resolution, and the bug is actually preventing the client from getting work done, instead of insuring that the client’s requests are addressed in a fair and equitable manner, the contract is preventing development from making what might be a quick fix. Instead of engendering goodwill by attempting to insure every request from a client is considered, you’ve created ire by preventing a developer from getting a client running again quickly.

The reality is that most negotiators want to overestimate the level of certainty and underestimate the likelihood of future divergences from the situation they perceive during negotiations. As a result, fewer contingencies are included and terms are finalized sooner than they should be. A good contract defines a good dispute resolution process and leaves room for renegotiation later if circumstances change. Something to think about before being too hasty to dot every i and cross every t in your next negotiation.