It may seem counter-intuitive – or even counter-productive! — to invite an economist to negotiate your next 3PL contract, as recommended by Adrian Gonzales in a Logistics Viewpoints blog entry earlier this month.
But would you rather have a lawyer do it? Really?
Gonzalez does make a point, and in entertaining style, featuring background music and lyrics by the 1980s rock group Depeche Mode.
Gonzalez makes the connection between the band’s “handshake deal” (sans lawyer or economist) for its first record label contract in 1981 and how it might have gone for them if they had “lawyered up” and taken the normal contract negotiation path. Back then they came up with a simple 50-50 agreement that offered flexibility, shared risks, rewards and interests – and all without contract legalese.
Of course that was then and this is a more complicated and legalistic now but perhaps you can see where this is going in the context of Vested Outsourcing. The crucial message that a rock band discovered (and even wrote about in song) back then is that the best and most useful contracts will flow from a vested, relationship-based approach that features mutually agreed upon and beneficial terms rather than me-first terms based on transactions, shifting risk and limiting liability.
I wrote about the vested approach to creating value through contract terms in a recent blog post, spurred by the International Association of Contract & Commercial Management’s 9th Annual Report on the most frequently negotiated contract terms. What alarmed me then – and still does now—about the IACCM findings is that most contracts remain much too bound by traditional legal exercises in self-interested power plays that set out first to limit liability, avoid risk and set transaction, service level and pricing level provisions, rather than striving from the start to foster collaboration on contract goals and scope with specific understandings on flexibility, communications, reporting and the responsibilities of the parties.
In his post Gonzalez tracks the IACCM report in a similar vein and notes that economists such as Oliver Williamson (whom we have talked about in other posts) “have a more enlightened and scientifically-grounded approach to structuring win-win business relationships than lawyers do.”
Economists understand that “people and organizations are in fact able to grasp the benefits of cooperation and team behavior,” he continues. “The law is struggling to catch up and still appears to believe that the best way to manage risk is to allocate it to someone else and the greatest incentive to perform is via threats of dire punishment for failure.”
Of course the foundation of a vested contract approach is based on the Five Rules because a Vested Outsourcing relationship functions best in a culture where the participants work together to ensure mutual success, or getting to What’s in it for We?
Thanks Adrian for the shout-out to my blog in your post; I figure a turn-about shout-out to yours is apropos.
So lawyer or economist for your next contract? Maybe it’s not that tough a call after all.