Contract Drafting Research Articles

The influence of different dimensions of social comparison on performance measure choice and team composition

Empirical research in the economic literature is increasingly addressing the implications of social comparison on incentive contracts by using analytical principal-agent models. Contrary to the existing investigations, which are primarily based on the assumption that individuals exclusively compare monetary income, theories of behavioral science suggest that monetary income and effort represent different dimensions of social comparison, which are weighted individually. Using a LEN framework, the present study focuses on this aspect of social comparisons and discusses how these dimensions and their individual weights affect optimal contract design and contract efficiency. I consider status-seeking agents who compare themselves to each other and differ with regard to their intensity of social preferences and the specific relevance of dimensions. Finally, I draw conclusions for the drafting of contracts with respect to (1) the choice of performance measures and (2) an optimal team composition.

Contract Design Choices in IT Outsourcing: New Lessons from Software Development Outsourcing Contracts

We study contract design choices affecting the complexity of outsourcing contracts, defined by the number and stringency of contract provisions employed, using 262 software development outsourcing contracts from a large European bank. Unlike extant research, we study the complexity of specific contract functions – safeguarding, coordination, and contingency adaptation – in both fixed-price and time-and-material contracts. The drivers of complexity we examine include not only transactional attributes, but also the “learning to contract” effect of prior experiences and of reliance on standard contracts. Moreover, unlike past studies, we also consider the high ex-ante contracting costs faced in some IT contexts, on the premise that design choices seek to minimize the overall transaction costs due to ex-ante contract planning and drafting and to ex-post opportunism and inefficiencies. Our results offer novel insights about specific contract functions that are masked by aggregate contract complexity measures used in past studies, and about pricing-based differences that are masked in mixed contract samples. Additionally, our results about the impact of transactional attributes and of the “learning to contract” effect (due to prior interaction and use of standard contracts) confirm the presence of tradeoffs between ex-ante and ex-post transaction costs as well as explain conflicting findings of past studies.

Public contract writing systems: A house divided

This paper examines automated contract writing systems, a vital aspect of public procurement which has replaced the more manual methods of drafting of contracts used in the past. Using the system of the U.S. federal government as an illustration, the various components of a contract writing system are detailed and discussed, distinguishing contract writing from eprocurement and demonstrating how a bifurcated approach has been adopted for contracting automation. The larger implications of this dual nature are analyzed along with misconceptions about contract writing systems and the contrast between the perspectives of procurement versus finance. Future research devoted more to cross-disciplinary issues and human factors affecting contract writing, rather than just systems development issues, may offer an opportunity to improve the effectiveness of public procurement automation.

On the Optimal Regulation of Unread Contracts

Most contracts in which we engage in the marketplace, we do not care to read. Consequently, a classic question arising in the law of contracts is whether, and to what extent, the content of such agreements ought to be subject to special scrutiny by courts, regulators or legislatures. This paper, accordingly, develops an economic theory of the optimal regulation of unread contracts. Under a prevalent view, when contract drafters are repeat players, there is little need for regulatory intervention, as the drafters’ concern for their reputation serves a disciplinary function, which guarantees the efficiency of the drafted terms. Alternatively it is often maintained that a small percentage of informed consumers can guarantee efficiency. Our paper revisits these insights and finds them flawed in three main respects. First, the mere assumption of repeat play does not, in and of itself, guarantee the sustainability of reputation. The socially desirable equilibrium, in which reputation disciplines sellers, is but one of many possible equilibria to which the market might converge and nothing guarantees that the optimal equilibrium would be selected. Second, even if the desirable equilibrium is sustained, it is expected to guarantee the efficiency of only some contractual provisions, not all. In particular, a reputation-minded drafter will tend to include efficient terms only to the extent that they pertain to high-probability contingencies, but not if they pertain to low-probability events. Finally, the influential conviction of contract law theorists that an informed minority of consumers is sufficient to guarantee the efficiency of contract terms is shown to be inapplicable when the majority’s lack of information emanates from their failure to read. We identify a regulatory framework that functions as a corrective measure to the above-mentioned failures. The suggested framework both serves to eliminate inefficient equilibria; and guarantees the efficiency of those aspects of the contract that reputation fails to remedy, i.e. provisions governing low probability contingencies. Although the rules of legal doctrine are not framed in the language of the proposed theory, we argue that the legal doctrine incorporates much of the same principles. Hence, the theory is not merely prescriptive, but also, to some extent, explanatory.

Developing Studentss Ethical Professional Identity

The Carnegie Foundation’s Educating Lawyers: Preparation for the Profession of Law encouraged law schools to take an active role in the professional identity formation of their students. Acquiring a professional identity requires learning more than the doctrine and practical skills needed to perform the tasks of a lawyer, but also involves developing an understanding of the values, norms, and perspectives needed to interact with other lawyers and with clients, to make decisions impacting clients, and to determine what constitutes appropriate and ethical behavior. In my Contract Drafting and Negotiating course, I provide my students with the opportunity to develop their ethical professional identities through the use of two different role-playing exercises, which I describe in detail in this short article.

Construction Contract Clarity: Conceptual Process Flow Modeling

Construction contracts can be a complex subject if issues corresponding to their interpretation and administration are not handled properly. The need for clarity of construction contracts is eminent especially in the context of the construction industry. The paper holds that a better interpretation and understanding of construction contracts could offer a proactive approach to avoid the inevitability of conflicts occurring in a project. Therefore, the objective of this paper is to develop a conceptual process flow model on how to clarify contract provisions in a contract. It is a subsequent development from the survey and case study that carried out for Malaysian Public Works Department (PWD) -203A (Rev. 10/83) Contract Form. The model is based on the results on the survey and case study, but it designed to render a generic approach of clarifying process for other contracts. Data Flow Diagram (DFD) method was selected to illuminate the process flow as the method focuses on object perspective and appropriate for this development. Certain limitations and recommendations of the model were highlighted. Ultimately, the model renders a useful guideline for future contract drafting and an important insight on clarity approach in contract administration for dispute avoidance.

Civil liability for nuclear damage and corporate system of complex insurance coverage for companies and organisations of nuclear industry

Building up a unified insurance coverage system for nuclear industry companies requires the industry and enterprises to perform a number of extrinsic functions (insurance expertise, development of insurance programme of the company, drafting of insurance contracts, etc.). The functions of the organisation of insurance coverage are offered to be deputed to a specialised organisation (insurance broker), which in this case becomes a part of the insurance coverage system of industrial companies. Thus, the proposed insurance coverage structure includes the following: ‘Industry’ (responsibility centre) – ‘Insurant’ (company) – ‘Specialised organisation’ (insurance broker) – ‘Insurer’ (insurance company, pool of insurance companies). As an example, we have examined the organisation of civil liability for nuclear damage. Analysing this kind of insurance and its peculiarities, we have revealed how the insurance broker (JSC ‘Atomic Insurance Broker’) would naturally fit into the system of insurance protection offered for nuclear industry companies.

A Corpus of Australian Contract Language: Description, Profiling and Analysis

Written contracts are a fundamental framework for economic and cooperative transactions in society. Little work has been reported on the application of natural language processing or corpus linguistics to contracts. In this paper we report the design, pro ling and initial analysis of a corpus of Australian contract language. This corpus enables a quantitative and qualitative characterisation of Australian contract language as an input to the development of contract drafting tools. Profi ling of the corpus is consistent with its suitability for use in language engineering applications. We provide descriptive statistics for the corpus and show that document length and document vocabulary size approximate to log normal distributions. The corpus conforms to Zipf's law and comparative type to token ratios are consistent with lower term sparsity (an expectation for legal language). We highlight distinctive term usage in Australian contract language. Results derived from the corpus indicate a longer prepositional phrase depth in sentences in contract rules extracted from the corpus, as compared to other corpora.

The provisions in a labour contract: technology and the market

Many common features of the legal regulation of the employment relationship have attracted little attention, although they are to be found in contracts with possible litigation, as for instance the possibility for the employer to reduce the mobility of the employee or to prevent them from retaining some intangible assets. The aim of this paper is to provide some insights into the actual drafting of individual labour contracts, starting with a quantitative description of the usage of contracts in France, and then going further with some explanations of why some provisions exist and in which cases they are expected to be found. The main empirical result is that factors related to the technology of job cannot be considered as the only causes of the specificity of a contract. In many cases, the bargaining process is relevant and is sensitive to the state of the micro labour market. Copyright The Author 2010. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Table of Contents

Abstract International ADR / Part 2 of 2 China's Passage: With ADR Options Increasing, Precise Contract Drafting Is Essential for Arbitration Users By Joseph T. Mclaughlin Arbitration / Part 1 of 2 Rent‐A‐Center's Roadmap Extends Beyond Contracts . . . To Congress and the Supreme Court's New Term By Philip J. Loree Jr. Worldly Perspectives Bulgaria's Major Mediation Steps Include Cash Back on State Filing Fees By Giuseppe De Palo and Mary B. Trevor Case Management / Part 2 of 2 To Restore Speed and Cost Effectiveness, Arbitrators Must Focus on Time Allocation By E. David D. Tavender CPR News CPR's Annual Corporate Leadership Award Dinner is Set for Next Month By Russ Bleemer

Origin Myths, Contracts, and the Hunt for Pari Passu

Sovereign loans involve complex but largely standardized contracts, and these include some terms that no one understands. Lawyers often account for the existence of these terms through origin myths. Focusing on one contract term, the pari passu clause, this article explores two puzzling aspects of these myths. First, it demonstrates that the myths are inaccurate as to both the clause’s origin and the role of lawyers in contract drafting. Second, the myths often are unflattering, inaccurately portraying lawyers as engaged in little more than rote copying. The article probes this disjunction between the myths and lawyers’ actual practices and explores why contracts origin myths might hold such appeal for this elite segment of the bar.

Managing Enterprise Service Level Agreement

The continued trend of globalization and technology improvement like the internet and transportation have spawned an increasing number of complex service chains that span across local, regional and national boundaries. Service level agreement (SLA) plays a crucial role in gluing service chains together. In that regard, this paper provides a complete guidance of end-to-end lifecycle management of SLA, including SLA-aware service modelling and terms optimization, contract drafting and compliance tracking. Among these, the author introduces his work in the area of enterprise SLA optimization to address existing deficiencies in this area including a roadmap for industry-strength SLA optimization capability and an initial version of SLA modeling and optimization toolset—code-named SLA-OASIS. Some out-of-box toolsets for SLA contract drafting and compliance tracking are also introduced.

Apparel and appellations

This case highlights poor contract drafting and the inherent difficulty of segregating a trade mark from its namesake.

The Ethics of Contract Drafting

This Article provides the first comprehensive discussion of the ethical obligations and duties to non-clients of lawyers drafting contracts. It discusses fraudulent representations, errors, fraud, and conscious ambiguity in transcription, as well as iffy and invalid clauses, and argues that the standard for lawyer misconduct under the disciplinary rules should be consistent with the purposes of contract law, one of which is to promote trust between contracting parties. Additionally, the Article discusses lawyer liability for negligence to non-parties in contract drafting and contends that lawyers should be liable to non-parties only when they are third-party beneficiaries to the contract between the lawyer and client for the lawyer‘s services. The Article concludes by arguing for a functional set of ethical rules for lawyers drafting contracts that reflect the increasing emphasis on cooperation, rather than competition, in the contracting process.

Dealing with Open Source Software Licenses in Outsourcing Transactions

Open source software (OSS) has become an essential part of the IT infrastructure of many companies and often provides cost-effective alternatives to proprietarily licensed software programs. In IT outsourcing transactions, too, OSS applications as well as open source operating systems play an increasingly relevant role. This is true in classic IT outsourcing scenarios, where an IT user (Customer) outsources his IT infrastructure in full or in part to an external outsourcing provider (Provider), as well as in business process outsourcing (BPO) projects or in out-tasking projects, e.g., where the outsourced tasks include the development of software or the integration of software into an existing product. Given the legal particularities of license, warranty and liability issues, using OSS in outsourcing projects entails a variety of specific legal questions which need to be taken into account in the contract drafting process as well as operationally throughout the life-cycle of an outsourcing project. Considering these issues in an early stage of the project strongly helps avoiding misunderstandings, disputes and-as a worst-case scenario-the GPL infection of a Customer's IT system or software product.

Responsiveness to change by standard‐form contract drafters in the construction industry

PurposeThe purpose of this paper is to focus on the Fédération Internationale des Ingénieurs‐Conseils (FIDIC) White Book standard form of building contract. It tracks the changes to this contract over its four editions, and seeks to identify their underlying causes.Design/methodology/approachThe changes made to the White Book are quantified using a specific type of quantitative content analysis. The amended clauses are then examined to understand the nature of the changes made.FindingsThe length of the contract increased by 34 per cent between 1990 and 2006. A large proportion of the overall increase can be attributed to the clauses dealing with “conflict of interest/corruption” and “dispute resolution”. In both instances, the FIDIC drafting committees have responded to international developments to discourage corruption, and to encourage the use of alternative dispute resolution. Between 1998 and 2006, the average length of the sentences increased slightly, raising the question of whether long sentences are easily understood by users of contracts.Research limitations/implicationsQuantification of text appears to be particularly useful for the analysis of documents which are regularly updated because changes can be clearly identified and the length of sentences can be determined, leading to conclusions about the readability of the text. However, caution is needed because changes of great relevance can be made to contract clauses without actually affecting their length.Practical implicationsThe paper will be instructive for contract drafters and informative for users of FIDIC's White Book.Originality/valueQuantifying text has been rarely used regarding standard‐form contracts in the field of construction.

On the Optimal Regulation of Unread Contracts

Most contracts in which we engage in the marketplace, we do not care to read. Consequently, a classic question arising in the law of contracts is whether, and to what extent, the content of such agreements ought to be subject to special scrutiny of courts, regulators or legislatures. This paper, accordingly, develops an economic theory of the optimal regulation of unread contracts. Under a prevalent view, when contract drafters are repeat players, there is little need for regulatory intervention, as the drafters' concern for their reputation serves a disciplinary function, which guarantees the efficiency of the drafted terms. Alternatively it is often maintained that a small percentage of informed consumers can guarantee efficiency. Our paper revisits these insights and finds them flawed in three main respects. First, the mere assumption of repeat play does not, in and of itself, guarantee the sustainability of reputation. The socially desirable equilibrium, in which reputation disciplines sellers, is but one of many possible equilibria to which the market might converge and nothing guarantees that the optimal equilibrium would be selected. Second, even if the desirable equilibrium is sustained, it is expected to guarantee the efficiency of only some contractual provisions, not all. In particular, a reputation-minded drafter will tend to include efficient terms only to the extent that they pertain to high-probability contingencies, but not if they pertain to low-probability events. Finally, the influential conviction of contract law theorists that an informed minority of consumers is sufficient to guarantee the efficiency of contract terms is shown to be inapplicable when the majority’s lack of information emanates from their failure to read. Regulation is a means to correct the above-mentioned failures. As we establish, positive law, in its core principles, serves two corrective functions: first, it serves to eliminate inefficient equilibria; and second, it guarantees the efficiency of those aspects of the contract that reputation fails to remedy, i.e. provisions governing low probability contingencies.

Arbitration Clauses in Chains of Contracts

To foster multi-party arbitrations French, US, and Austrian law allow, with significant nuances, for the extension of arbitration clauses through chains of contracts to claims by the ultimate buyer as a third party to the contract containing the arbitration clause against the first seller/manufacturer. The possibility of an extension of an arbitration clause in the case of a chain of contracts is inextricably intertwined with the substantive law question of whether or not the ultimate buyer may take direct recourse against a remote seller. Its admissibility cannot be regarded as a principle of international arbitration but is solely given if the domestic law of a jurisdiction that acknowledges the extension of an arbitration clause to a third party in a chain of contracts applies. Because no direct contractual relationship exists between the ultimate buyer and the remote seller, the buyer’s direct claims sound in tort. The law applicable to these claims by virtue of the conflicts rules on products liability or tort should decide on the extension of the arbitration clause as well. Remaining procedural disadvantages for the middle-man in a chain of contracts can only be addressed by contract drafting.

Strategic Urban Projects in Amsterdam and New York: Incomplete Contracts and Good Faith in Different Legal Systems

Contracts between local government and private investment agencies play an important role in strategic urban projects. Real estate cycles provide only a narrow window of opportunity within which to draft such contracts. A legal system should therefore not impede the possibility of reaching an agreement quickly; instead, it should facilitate efficient ways of reaching an agreement. Lengthy contracting may contribute to the persistence of real estate market cycles. This paper explores the question of whether the civil law principle of good faith facilitates the drafting of incomplete contracts, which may be efficient in situations of high uncertainty and complexity, as was the case with two strategic inner-city projects: the South Axis in Amsterdam and Battery Park City in New York City. The paper further establishes that good faith does play a considerable role in the differences in contracting practice.

Arbitration for Supply Chain and Money Supply Cause Disputes in PPP Projects: Distilling Comparative Economic Interests from the Greek Legal System

The worlds of arbitration and business infrastructure look at each other with ever greater intensity. The longevity, financial stakes and contractual features of PPP (Public-Private Partnerships) projects suggest that public, institutional and private stakeholders may not have overlapping decision-making portfolios. In a new transient domestic and international commercial and investment era, the economic drivers for arbitration in supply chain and money supply cause (third party) project disputes is not well documented. The present paper reports upon the institutional and legal environment of this dispute regime in the developing infrastructure market of Greece and identifying the impact of a legal environment upon the stakeholders’ business incentives to press ahead with arbitration. A critical appreciation of the contours of the legal and business risks involved in arbitration will confirm the need to invent a new procedural tool and practice standard, a “level playing field” which will be responsive to the project risk profile and the parties’ economic interests. The findings of the present study are two-fold. First, they confirm that the parties will be more inclined to embark upon arbitration at the end of the construction phase, and second, that domestic and international stakeholders’ economic interests in the regime are measured against their anticipated losses from non-completion of the PPP projects. The findings of this study further re-theorise arbitration as a “cyclical” or “counter-cyclical” dispute resolution regime. Construction management researchers will benefit from an exploratory and informed appreciation of unorthodoxies in the Greek legal system and gain from a fresh approach of economic incentives when they are faced with decision-making tasks as arbitrators or engaged in dispute resolution contract drafting.