Contract Negotiations Can Strengthen Business Relationships

"The process of negotiating a contract can help the parties get to know each other better, clarify their objectives and expectations, and thereby strengthen their relationship. Although some argue that contracting can signal distrust and encourage opportunistic behavior, researchers have found that 'clearly articulated contractual terms, remedies, and processes of dispute resolution' can complement trust-building behavior, such as flexibility, bilateralism, and repeated exchanges.'

If negotiated and structured properly, formal contracts can illuminate common objectives and avert potential disputes. They are not necessarily a sign of mistrust. As one lawyer put it, 'I am sick of being told, 'we can trust old Max,' when the problem is not one of honesty but one of reaching an agreement that both sides understand.'

On the other hand, if poorly managed, the process of reducing an agreement to writing can create mistrust or generate ill will.."

Read more in this article by Constance Bagley for HBS Working Knowledge.