Flexibility in contract terms and contracting processes

Abstract

Purpose

New business models, such as life‐cycle contracting, challenge the narrow and static understanding of contracts with hard and precise terms. The aim of this paper is to examine how flexibility could be incorporated into contracting processes.

Design/methodology/approach

The data of the paper have been gathered applying the triangular method; first, by interviewing key personnel participating in contracting at eight Finnish firms; second, examining contract and other documents of those companies; and third, studying earlier research on contracting practices. Theoretically, the paper is based on relational contract and proactive approaches to law on the one hand and on organizational studies based on new institutional economics on the other.

Findings

Flexibility is often introduced to contracts with relational methods, relying on good personal relationships between business partners or negotiation power and negotiation skills. Contract documents often do not contain mechanisms for dealing with contingencies, or “soft” contract terms. The paper finds the following reasons that may explain this. First, firms heavily rely on model contracts to develop their own templates and the lack of contract models in new business areas hinders firms to develop their templates. Second, unfamiliarity with using soft elements makes it difficult to use them. Additionally, in some cases firms may prefer using relational capability.

Research limitations/implications

The findings need verification from further multidisciplinary empirical research.

Practical implications

The findings support firms in developing their contracting capabilities to meet the requirements of the changing business environment and gain competitive advantage from well‐organized contracting.

Originality/value

This paper is one of the first empirical studies comprising also the legal approach.

Citation

Nystén‐Haarala, S., Lee, N. and Lehto, J. (2010), "Flexibility in contract terms and contracting processes", International Journal of Managing Projects in Business, Vol. 3 No. 3, pp. 462-478. https://doi.org/10.1108/17538371011056084