Evolution of Contracting
Contracts have evolved over centuries. It is a lawful binding relation between two or more parties. The contractual relationships can occur - from a small project to a corporate takeover or treaty between nations. These are specific tangible elements and codes that are structured according to the laws of the country in which they are written.
In some countries, contracting parties like to meet with a verbal and handshake agreements for informal promises or trades of goods and services.
During the past few decades, contracts have undergone many changes because of globalisation in our economy, outsourcing, deregulation and the types of competitors. The mode of contracting has become easier because of the usage of Internet.
With all these changes, agreements written a decade ago seem simple in comparison to present agreements. This revolution in the contract structure, content and format has occurred because of the changing roles of contracts in today?s business world.
Contracts have evolved from a simple document to a dynamic and powerful tool with far-reaching implications for long-term business and personal relationships.
Let us see an example of the development of contracting taken from the article „An Unlikely History of Contracting? by Gary L. Sturgess published in the Journal of International Peace Operations.
Two hundred years ago, British and Irish convicts were transported to Australian colonies by private contractors. In 1787, Australia?s first convict fleet contract was won by a naval contractor, William Richards following a public tender. Richards supplied six ships and he had to make provision for food for about 800 convicts and their guard of marines for a period of eight months. Richards was paid a flat rate per month for each ton of shipping and another separate rate per convict-day for food provisions. This was similar to the contracts the Navy Board had developed for the shipment of troops to various parts of the world.
The second contract was rewarded in 1789; this time with the objective of minimising costs. The contract marked a flat rate which transferred the risk of delay. The mortality rate of convicts was high enough to attract the attention of the authorities which received complaints of negligence. To prevent further negligence of such kind by the contractor, there was an enquiry and criminal prosecution, and the Home Department argued that the contractor should be paid for the number of convicts actually landed rather than taken on board. Hence the payment was modified. A bottleneck faced in implementing this mode of payment was that the contractors were not prepared to accept the complete transfer of outcome risk to them.
This kind of contract dropped the morality rate of the contractors substantially. The only danger that the governing authority or the contractor faced, comprised certainties of ocean travel, thus minimising the probability of ill treatment of persons on board by the contractor. The example explained was a performance based contracting.
Thus, we can conclude that the following actions need to be incorporated for successful contracting:
- Good contract design.
- Selection of a socially responsible provider.
- Sound contract management by public officials.