Spirit Of Our Agreement

Based on our participation in hundreds of negotiations and a growing body of scientific work on implicit and „relational“ contracts, we have come to the conclusion that the culture of a common understanding of the spirit of the deal can be as important as consent to the letter of the deal.1 This article explains what the social contract is, shows how the views of the parties on the partnership agreement can be very divergent. examines the problems that arise when social and economic contracts disagree and suggests ways to negotiate both so that they are independent and mutually reinforcing. Since the national chain has only sold through a local hospital, it has opposed economically viable measures, such as the abolition of unnecessary services, in line with contractual incentives and the formal management of the joint venture. The national channel was naturally concerned that one day the joint venture could fail and that its hospital – which now offers reduced services – would no longer be competitive. On the other hand, the leaders of the regional chain saw the joint venture as a way to develop and streamline their regional network. They insisted on making the regional operation more efficient, but formal incentives for contracting and managing – maximizing the profits of the joint venture – were met with this task. Had the parties had better understood the other`s views on the underlying purpose of the transaction, they could have reached a more limited but effective agreement. Such an agreement would have ignored possible operational efficiencies and would have focused on the benefits of joint purchasing practices and the construction of common access facilities. The underlying expectations of each organization met with both the expectations of others and the contract itself, turning enthusiasm and potential profits into a heagy of blame. A final error of judgment to repeat is that the social contract must first and foremost be psychological or „soft“ – not something that can be written in a written agreement. But as we have shown, the important provisions of the social contract – such as expectations about the nature and duration of the relationship – can often be made explicit in the economic contract.