Lean Contracts – Contracts that favour cooperation
Did you know that there exist “lean contracts”? They differ quite a lot from traditional ones. To work with partners you really need to have a lean contract in place! Why, you might ask!?
- Traditional contracts are all about protecting each party from opportunistic behavior on the part of the other party. Contracts are also used in the traditional way to move risks from your organization to another one. This is counterproductive from a lean perspective. These types of contracts set up walls between organizations, making it very hard to work together in a lean spirit.
- “Lean contracts” aim at defining appropriate incentives for companies to work together in a synergistic manner.
What is called “lean contracts” here is also often referred to as relational contracts. They describe the relationships of the parties rather than the expected results of the relationship. A relational agreement is specifically constructed to make it clear to people doing the work that the best interests of the individual companies are best served when they focus on the best interests of the joint venture.
Another interesting difference to notice between the two different types of contracts is that the second type of contracts assumes that it is not possible to effectively specify the product in advance. This goes hand in hand with the lean principles. Examples of such contracts are
- The T5 agreement
- The PS 2000 contract
They can be used as templates when setting up your own contracts!
