Effective Designing of Contracts - Research Paper Example

Contracts are an important part of relationships. They offer guidance and means through which agreements are implemented. Nonetheless, it is important to ensure the designed contracts are as effective as reasonably possibly. Weber and Kyle state that, “contract influences the exchange and ongoing relationship between parties is an unresolved issue (53).” Basically, the article suggests existence of negative and positive of contracts and the way they handle exchanges. They argue that contract frames are the determinants of the impact of implementation. Based on this importance, the paper emphasizes the need for further research into opportunities presented by effective designing of contracts. This paper dissects how framing and expectations of contracts influence the contract’s performance. Various researches have attempted to look into the ubiquitous nature of contracts. Some have mentioned that contracts are merely necessary safeguards which secure parties involved in a contract against potential undesirable behaviors by the involved parties. This facilitates exchanges. Many scholars note that mitigation of the threats arising from contracts is dependent on contractual framing and expectations. Recent evidence from researches suggests contract framing play an important role in determining how contractual application is implemented. For instance, contracts which are framed with a loss in mind in case of failure to meet threshold amounts to the involved parties making greater effort. Similarly, contracts framed with a gain in mind, the parties will also be motivated to work even extra hard. The expectation of something is seen to motivate an action in implementation of the contract. Many contract theorists have begun systematic unpacking of behavioral implications associated with contract frame and expectations from the same (Weber and Mayer 56). A key emerging issue in design of effective contracts is the psychological impacts of framing and expectations of contracts. Despite widespread knowledge of the role of contracts in ensuring mitigation of hazards through development of safeguards, there exists little knowledge with regard to psychological impacts of the contracts. Contract framing offers a potential mechanism to psychologically affect the exchange or continuous partnerships.as revealed in the study, contracts aim at protecting the parties involved in a relationship against any form of opportunistic behavior thus boosting the confidence of the parties involved so that they can proceed with the relationship in a confident manner. However, some people stipulate that some formal contracts usually foster distrust among the people in the relationship. Moreover, it brings in the actions that should protect the parties from exploitation (Weber and Mayer 62). For example, recent research demonstrates that the impact of contracts may lead to the degradation of the relationship between the parties involved. According to the article, many persons ear some dispositional tendency to look at the world from either prevention or a promotion perspective. However the concept acknowledges that the way individuals view goals can be affected by situation ally induced regulations induced by situations. Loss framing can for instance induce some prevention focus; while on the other hand, gain framing can result into a promotion-oriented focus. Interestingly, the proponents of this concept affirm that irrespective of the regulatory focus motivation, be it dispositional or situational, outcome is likely to be the same with minimal or no variations at all. Irrespective of whether it is dispositional or situational prevention frames, they all lead to the perception of an objective as minimal (Weber and Mayer 58). This amounts to a goal which must be met, resulting into emotions and behaviors which are specific to the respective view. In addition, promotion frames which are dispositional or situational amount to the perception of an objective as maximal and hence an ideal which induces emotions and behaviors relating to the respective view. Consequently, both dispositional and situational regulatory focus produces emotional, behavioral, as well as relational variations. In general; contracts have different impacts on the emotions, behaviors and expectations on the parties that abide themselves to a contract. In this case, the different parties that get bound by a contract usually experience different outcomes based on the context of the contract. Therefore, it is vital for the involved parties to ensure that they get satisfied with the provisions present in the contract before they decide to abide themselves to it (Weber and Mayer 59). Therefore, this paper will discuss the effective ways of designing a contract based on the state of the relationship among the people who get bound by the contract. Though contracts provide several safeguards that serve the role of protecting the parties involved from the hazards that may be present in a transaction, there are certain ways in which contracts impact on the parties involved negatively (Daft 41). For example, some contracts may be designed in such a way that they provide room for the extendibility option. Therefore, since the payoffs between the parties would still be the same, the impact of the extendibility option impacts significantly on the exchange that people or firms undertake. For example, a certain IT manager revealed that when a customer terminated a contract early, some engineers would be angered and take the issue personally (Weber & Mayer, 55). Moreover, the contracts that focus on work imply that some clauses present in the serve the purpose of coordinating the relationship between the employer and the employees. However, there are some clauses in the contracts which usually pose barriers thus leading to the development of a feeling of distrust among the parties involved. Moreover, it is true that there are some incidences whereby some firms may add certain clauses to the contract without impacting on the relationship in any way (Daft 25). This is especially the case, when the parties involved have the ability to draft effective contracts with each other. In this case, it is true that different parts of a contract normally impact differently on the parties involved. In general, an effective contract is essential because it allows a person to tailor make the contract in such a manner that it addresses the needs of the client. Therefore, before embarking on how to design a contract, one should first think through the life of the contract and the various events that could take place over the life of the contract. In this case, the contract should clearly demonstrate the parties who should adhere to the obligations set forth by the parties. Moreover, the obligations should be outlined and the time when they should be fulfilled (Daft 34). Also, it should illustrate where the contract should be performed and the mechanisms that would be adopted while performing the contract. Moreover, one should determine whether the performance of the contract involves any goods or services or money. In this case, the contract should offer the client protection until the duration of the contract elapses. Regardless of how well one knows the person that he is transacting business with it is, vital for one to take caution when it comes to transacting business activities. It is essential to get the transaction into writing in order to stay on the safe side in case the relationship with the other party deteriorates. Therefore, without an agreement that sets the obligations and the expectations of the parties involved in a contract, in case something goes wrong, nothing would provide evidence expect the word of mouth. This can ruin the relationship between the two parties and this often leads to expensive battles in a court of law. Therefore, by reducing the agreement into a form of writing, one would be able to save the time, effort and headaches that would be felt in case the inevitable happen. One should take time to understand how to draft an effective contract that would safeguard the transactions with a different party. Therefore, the following are the guidelines that a person should follow while drafting an effective contract. It therefore a foregone conclusion that an effective designed or rather framed contract is likely to facilitate better implementation of an action or a project. Nonetheless, the expectations out of the contract also play a fundamental role in defining the contracts implementation. Works Cited Daft, Richard L. Organization Theory and Design. New York: Cengage Learning, 2011. Print. Weber, Liby and Kyle Mayer. "Designing Effective Contracts; Exploring the Influence of Framing and Expectations." Academy of Management Review 38.1 (2011): 53-75. Print. Read More