Vesting Is More Than Contract Management

The recent International Association of Contracting and Commercial Management report on  contract terms has got me thinking of the terminology we use to describe how an outsourcing contract should operate over time.

As we move to the Vested Outsourcing world of cooperative, mutually-beneficial, performance- and outcomes-based contracts based on the transforming power of the Five Rules I’d suggest that the oft-used term “Contract Management” no longer really fits the bill.

In fact I believe Contract Management is a bad term. At the very least it’s outdated, larded under decades of contract legalities and precedents that struggle to account for what has happened and what may happen in the real world.

In Vested Outsourcing aren’t we really developing a flexible, anticipatory and collaborative framework and governance structure to manage a dynamic business relationship? This is straight out of Rule 5, Governance Structure Should Provide Insight, Not Merely Oversight. The Vested Outsourcing relationship works best in a framework and culture where the participants work together to ensure their mutual success.

Think of it this way: Marriage is a legal agreement, and certainly a marriage can be difficult to manage. But it is much more than a legal enterprise in which each potential event or scenario can be carefully anticipated and managed, or something that’s inherently susceptible to strict management rules. It’s a unique, vested relationship based on mutual trust, cooperation, flexibility, hope and much more.

A contract, especially a vested contract, is like a marriage in many important respects. It should be the basis of a long-term relationship in which the contract parties work, grow and prosper together.

A marriage based totally on transactions doesn’t sound like much fun for the long-haul; neither is a transaction-based contract.

So instead of Contract Management, perhaps it should be called Economic Relationship Management.

And while you’re thinking about managing that economic relationship think of it also as a flexible framework, not a legal weapon.

We all know that the world of business and outsourcing is not static; it changes and evolves over time. Dr. Oliver Williamson, the Transaction Cost Economics guru, argues that organizations that “all complex contracts will be incomplete – there will be gaps, errors, omissions and the like.”

As such, a contract should provide a framework and (I hope) a process for understanding the parties’ relationship. The framework thus must be highly adjustable or adaptable rather than prescriptively outline the detailed working relations.

Flexibility should be embedded in a contract so that potential maladaptations can be resolved or at least lessened by crafting mechanisms that deal with unanticipated disturbances as they arise.

Creating a detailed contract and associated statement of work puts the outsource provider into a box and forces the provider to stay there. Instead of being a prescriptive document, the contract should provide a flexible framework and process for understanding the parties’ relationship. In achieving this “flexible framework” the contract will never accurately or fully indicate real working relations, unless the contracting team has immense psychic talents. Instead of trying to guess about the future, it is better to indicate a rough idea of the work to be done, while providing methods for ultimate appeal.

This means that this framework/process must be highly adjustable or adaptable. And trusting. And cooperative. Like a marriage.

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