What is relational contracting?
Relational contracting is a way of working with your customers and suppliers that focusses on the power of the joint relationship to build competitive advantage empowering the achievement of mutual vision and goals.
A relational approach to contracting focuses on discovering each party’s vision, goals, values and approach to risk allocation at the beginning of the relationship. From this discovery the parties are informed on areas of alignment – and misalignment – making them empowered to consciously agree what they will each bring to the relationship and to design how they want to collaborate, allocate risk, problem solve and work together when things go wrong.
When is it important?
Relational contracting is best suited to arrangements where there is a high degree of interdependence, risk and complexity and/or where a failure collaborative working threatens the potential value in the arrangement. A relational contract approach will empower the parties to continuously design and align their respective interests towards achievement of their mutual goals.
Is relational contracting relevant to my organisation?
Relational contracting differs from the traditional transactional approach to contracting and isn’t always the right fit for a transaction. To establish whether relational contracting is suitable for you:
- Review your existing strategic business relationships and reflect whether problems arise from the current transactional approach? Do problems arise from a failure to align on vision and goals or a misalignment on how parties will collaborate or expectations on how parties will approach risk and problem solving?
- Also review existing strategic successful relationships and identify what is working well? To what extent is the success due to an alignment on mutual vision and goals, a clear and agreed approach to communication and risk allocation and mitigation a part of the success?
From your review are you starting to establish your own fact-based evidence that relational contracting empowers stronger and more successful relationships?
Shifting to a relational approach might involve arranging a discovery workshop with the other parties to establish:
- What your mutual vision and goals are for the relationship?
- What is the competitive advantage of the empowered relationship you are jointly building?
- What is your agreed approach to collaboration, risk allocation and mitigation?
- How will you each lean-in to your shared values to build trust, openness and integrity when things go wrong?
Using relational contracts for strategic and business critical contracts empowers the parties towards a stronger and more successful relationship and empowers the parties to achieve more together.
You can find out more about relational contracting here:
Here at Devant, we’d love to hear your thoughts on your current transactional approach, the challenges you encounter in achieving your mutual goals in strategic relationship and your questions on how a relational approach could serve you better.
At Devant our experienced commercial contract specialist are on-hand to help you with your sales agent arrangements and all your commercial contract needs, get in touch to find out how we can help you achieve your commercial goals.