Contracting for process

Abstract

This article introduces the concept of contracting for process and considers when it is likely to be the best contract design. Contracting for process is in widespread use, but it often goes unnoticed. 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. Parties can employ this design for both contracts made or renegotiated during a crisis and for contracts made in ordinary times. The concept articulated here, however, is not confined to contexts of uncertainty or complexity; it can be used to achieve a variety of objectives and to solve a number of problems. Nor is it limited to or coterminous with relational contracting, managerial contracting, contracts for innovation, or other contracting practices and theories. Each of these can overlap with contracting for process, but not necessarily. (Picture a Venn diagram in which some areas overlap and others do not.)