Lawyers are the engineers and architects of contractual frameworks.
Arguably, with respect to the success of the undertaking, they
occupy a place of equal importance to the parties executing the contracts.
After all, contracts are put in place to help prevent problems from
arising in long-term business relations. As studies of business interactions
show time and again, and I have discussed in earlier articles,
keeping conflict at bay in long-term business relations is not an easy
task. Many are still perplexed to learn what the research consistently
indicates: that contracts themselves are partly responsible for the tensions
that arise. In fact, contracts seem to do little to preserve
relationships; instead, they tend to fuel disputes and trigger costly litigation.
What are the factors that underlie this common failure of contracts?
It appears that contract drafters ignore non-contractual norms when
designing contracts, which leads to tension during the contractual relationship.
In earlier work I identified a number of non-contractual factors
that influence parties actions but rarely find a place in contracts
(Kamminga 2008; 2011). These non-contractual drivers influence contract
parties’ behavior and can, in fact, encourage parties to act contrary
to what the contract text directs them to do. This article takes a problem
solving approach: it studies the dynamic between various drivers of contractual
behavior more in-depth, and looks into the drivers triggering or
impeding evolution in contract design. I discuss why and how lawyers
may better manage tensions and prevent disputes by revising their contract
design methods and choices (and how to convince them to do so).
What follows is a discussion of the dynamic interplay between the
formal and informal governance mechanisms at work in every long-term
relationship. In addressing this matter, this paper points out (a) why lawyers
experience very little incentive to search for ways to improve the
cooperation function of contracts; (b) how to overcome these obstacles;
and (c) how to integrate social and economic drivers to increase the
effectiveness of contracts. To this end, a framework is put forward that
might be used to (1) identify tensions between formal and informal governance structures in actual contracts and (2) provide a roadmap for
contract design that foreshadows and possibly eliminates some of these
tensions during the contract drafting process. This article aims to contribute
to a broader discussion of more effective ways in which transaction
lawyers can contribute to society and, more specifically, the paper
explores how a more holistic approach to contract design may help prevent
conflict and achieve better results for contract parties.