With businesses increasingly dependent on service providers to reduce costs, improve quality, and drive innovation, traditional contracts don’t work. In fact, they often undermine the partner-like relationships and trust needed to cope with external uncertainty. A better approach is to use what leading academics call a “formal relational contract.”
Why transactional contracts are a thing of the past
Over the years, outsourcing has become a popular way for companies to reduce costs, improve efficiency, and access specialized skills and technology. The conventional approach uses a transaction-based contract where the buyer pays the provider a negotiated price for set scope of work (e.g., price per billable hour of a software developer, price per licensed user for access to a SaaS product, price per call for desktop service support).
