Contracting for Process

Abstract

This paper introduces the concept of contracting for process and considers when it is likely to be the best contract design. Some characteristics of contracting for process suit it particularly well to situations of uncertainty, including the radical uncertainty that results from fundamental disruptions such as covid-19. The concept introduced here, however, is not limited to contexts of uncertainty or complexity; it can be used to achieve a variety of objectives and to solve a number of problems. Notably, and perhaps surprisingly, the concept is not limited or even necessarily associated with relational contracting, quasi-integrated contract manufacturing, managerial contracting, contracts for innovation, or the like. Contracting for process is well suited to many discrete contracting contexts and is indeed in widespread use, although we fail to notice. This paper aims to observe a contracting practice that has not been articulated, to distinguish it from contract designs and theories of contract that obscure contracts for process, and to assess how contracting for process is better or worse suited to different parties, transactions, and contexts, particularly in times of crisis.

Keywords: contract law