Creating a good contract is the basis for a good partnership, business, or other form of collaboration between two or more parties.
Some people obsess over the ways to make the most solid contract. Several steps taken can reliably lead to a better, more watertight contract with grander end results.
Creating incomplete contracts
Forbes discusses some of the best ways to ensure a good contract. First, it notes that almost every complex contract is “incomplete” these days. In the past, people would spend time and money to ensure a complete contract as written by attorneys. However, many parties these days find value and benefit in putting an incomplete contract on the table and filling out the remaining sections as needed when collaborating.
Including guiding principles
On top of that, it helps to incorporate guiding principles into a contract. This includes societal norms like the concepts of equity and loyalty. This can help avoid deadweight losses. It can also keep parties aligned through the coupling of governance mechanics, structured communication and these guiding principles.
There should also remain a so-called “optimal contrast” between the self-interest and the assumptions of rationality involved in contract making. Behavioral biases of any involved party can easily potentially influence the way someone views a contract or the interpretations of a contract, but the guiding principles can help to mitigate these potential slips and issues.
Of course, it always helps to have more eyes look over a contract as well. Though complex contracts do not need to end up fully complete, it is best to have as little room for error or misunderstanding as possible.