Abstract
From service management to vendor agreements, contracts take many forms. They establish partnership and accountability between parties and often require considerable negotiation before being finalized. Traditionally, a wide variety of contract types was created to fit the needs of contractors, supplies, and clients. These types vary according to the degree of risk sharing, timing, and responsibilities assumed by the contractor for the costs of performance; and the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals. As we delve into the digital transformation era, various business aspects have been revisited. Innovation, transformation, and change management become major players in all business relations, and they need to be considered in the contracting arena as well. This chapter is discussing various types of traditional contracts specifying the differences of each type and how and when to utilize it. It also describes the pros and cons of each one.
TopBackground
Contracting is a traditional story to manage the relation between suppliers and clients. There is usually a bonus as well as a penalty depending on which side of the project budget the contractor ends up. This relation is progressing up to real-time contracts and forward contracts as discussed by (Morstyn, Teytelboym, & Mcculloch, 2019) to resolve the coordination between the owners of large-scale and small-scale energy resources at different levels of the power system. (Lumineau, 2017) stated that two main governance mechanisms are at play in interorganizational relationships. However, this background will focus on new contracting methodologies and describe few real scenarios of existing contracts.
The contractor is insulated from major changes in the contract, but their incentive to find efficiencies in the performance of the work is greatly increased. (Lumineau & Quelin, 2012) discuss contracts as a first stream focuses on the role of the formal contract as a safeguard against opportunism and conflict. A second stream focuses on relational governance, and trust, as a mechanism regulating interorganizational exchange (Heide, 1994).
In recent years, the increasing number of transport services offered in cities and the advancements in Technology and ICT have introduced an innovative Mobility as a Service (MaaS) concept. (Jittrapirom, et al., 2017). Flexibility in contracting is increasingly required as discussed by (Du, Gelenbe, Jiang, Zhang, & Ren, 2017) who suggested offloading contracts as a mechanism to incentivized traffic and encourage each small-cell base stations to select the contract that achieves its own maximum utility. (Hietanen, 2014) discussed the different transport modes to offer a tailored mobility package, like a monthly mobile phone contract and includes other complementary services.
Key Terms in this Chapter
Value-Based Contracts (VBC): A written contractual agreement in which the payment terms for medication(s) or other health care technologies are tied to agreed-upon clinical circumstances, patient outcomes, or measures. This was originated in the healthcare industry and spread to other industries.
Contract Rights: An understanding of how contracts influence trust thus it fosters the interaction between the two contract parties. Those rights may be expressly written such as the exclusive right to use copyrighted material or implicit.
Fixed Price Contracts: A very popular contracting where the owner provides a detailed specification of the requirements, and then the winning contractor is obligated to meet the specified requirement at an agreed-on price.
Implicit: Terms that exist based on current contract laws and policies. While they can be written into the agreement, they're usually simply implied by governmental laws or common practices.
Bilateral Contract: An agreement happened because both parties must make a promise.
Opportunity Contracts: A type of contracts that address many variables that can legally be employed on any given program. It offers an agile approach with a broad view of associated risks and business expectations.
Agile Contracts: A new contracting style in which the supplier continually align with customers and other stakeholders on what’s being built. This is driven by continuous changes, development discoveries, evolving customer needs, changing technologies, and competitor innovations.
Unilateral Contract: An agreement where only one party promises something. The concept of unilateral contracts is important because it has been used by courts to hold a party liable for a promise even when consideration was not given by the other party.
Quasi Contracts: A unique circumstances in which obligations imposed by law to avoid injustice. When no enforceable contract exists, the court may imply one to avoid unjust enrichment on a benefiting party.