Relational Contraction: Rewards and Downsides

Topics: Contract, Transaction cost, Cost Pages: 3 (1096 words) Published: May 7, 2012
During this coursework, I would be investigating the concept of relational contracting and how it is used in the real world, this would be followed by a full explanation of the advantages and disadvantages of relational contracting, supported by real case studies and how some of the advantages in turn might lead to the saving in transaction costs. Managing the relationship between various parties is becoming crucial as the industry is moving from fragmented and adversarial ways of working. Under less- adversarial procurements routes and contractual arrangements such as partnering, it is essential that the parties extend commonly beneficial objectives and a high level of commitment, corporation and trust. When quarrels do occur, without good relationships between the parties they are likely to go back and refer to the clauses of the contract, which may start to turn to adversarial ways of working (Faisol, Dainty &Price). Although more and more academic papers have discussed the concept of relational contracting, there is still no consent on the specific and comprehensive meaning of the concept, this is because various researchers analyse it differently and the paces and development of relational contracting in different countries are quite different. Relational contracting was first defined by Macaulay (1963) as the working relationship between amongst the parties who do not often follow the legal mechanism offered by written contracts, and the parties themselves govern the transactions within mutuality acceptable social guidelines(Chan & yeung,2009). Macneil (1974) stated that relational contracting is a contract that can be treated as a ‘present promise’ of doing something in the future that has dynamic and continuous states of interrelated past, present and future (Chan, Chan & Yeung, 2009, pg:3). In addition Eisenberg (2000) stated that relational contracting recognises that the ‘formation of contract is a dynamic, evolving process’. He argued that...
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