Relational contract

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A relational contract is a contract whose effect is based upon a relationship of trust between the parties. The explicit terms of the contract are an outline implicit terms and understandings that determine the behaviour of the parties.

Relational contract theory was originally developed in the United States by the legal scholars Ian Roderick Macneil Stewart Macaulay. According to Macneil it offered a response to the so-called “The Death of Contract” school’s nihilistic argument that a contract was not a fit subject for study as a whole; each different type of contract (e.g., sales, employment, negotiable instruments) could be studied individually, but not “contracts-in-gross”.[1][2]

Macneil explains that this is only one of a number of possible relational theories of contracts, and accordingly renamed his own version “essential contract theory”.[3]

Relational contract theory is characterized by a view of contracts as relations rather than as discrete transactions (which, Macneil argued,[4] traditional “classical” or "neo-classical contract" theory treats contracts as being). Thus, even a simple transaction can properly be understood as involving a wider social and economic context. For instance, if A purchases a packet of cigarettes from a shop he has never been into before and will never enter again, that seems quite discrete. However, A will almost certainly have a loyalty to a particular brand of cigarettes and expectations about quality about which he would be prepared to complain to the manufacturer, although he has no contractual privity with the manufacturer. There is also an understanding that A will pay for the cigarettes, not simply run off with them, and that if he tenders a £10 note in exchange for the cigarettes which are priced at £6, the paper money will be acceptable and change of £4 will be given. None of this is explicitly stated between the parties, whose conversation is likely limited to “20 Marlboro, please” on A’s part and “That’ll be £6, please” on the part of the retailer. Thus, even the simplest transaction has a good deal that is unstated and dependent on a wider web of social and economic relations. How far outwards into that web one needs to investigate will depend on the transaction and on the purpose for which it is being examined.[5]

Although earlier writing[6] may be taken in places to suggest that the substantive rules of contract law need to be reframed to acknowledge the relational, non-discrete nature of contracts, this has not been subsequently pursued and current scholars have argued that it is neither possible nor necessary to reform the law of contract itself to work effectively with relationally-constituted contracts.[7]

Other characteristics of relational contract theory are that “contract” is understood to cover economic exchange in general, not just contracts that would be recognized as legally enforceable agreements by courts in any given jurisdiction, that relations are mostly held together by their own internal values and wider social/economic factors, and, at least in relational theory in the Macneil mold, that exchange relations are governed by a number of norms. This last is not to say that relational contract theory is normative in nature, setting out what ought to be the case properly, but rather that there are actual observable normal characteristics or factors at play in relations. Macneil’s essential contract theory offers some 14 norms.[8]

The English contracts scholar Richard Austen-Baker has more recently proposed an alternative version of relational contract theory, called “comprehensive contract theory”, which posits four “comprehensive contract norms” in place of Macneil’s 14, though Austen-Baker does not deny the validity of Macneil’s norms as a complex tool of analysis.[9] The Japanese scholar Takashi Uchida has proposed a version of relational contract theory inspired by Macneil, relating it to the Japanese situation.[10] Other notable contributions to relational contract theory have been made by Stewart Macaulay (U.S.), Lisa Bernstein (U.S.), David Campbell (England) and John Wightman (England).

Recent research from World Commerce & Contracting, the University of Tennessee and Cirio law firm [2] takes the relational contracting theories expressed by Macneil, Macaulay and others to make them relevant for contracting practitioners trying to craft strategic, collaborative, win-win relationships with their procurement and outsourced business partners.[11] The white paper, [12] outlines basic tenets that are foundational to relational contracting, including communication, risk allocation, problem-solving, no-blame culture, joint working, gain and pain sharing, mutual objectives, performance measurement and continuous improvement.

In 2019, David Frydlinger,[Oliver Hart] and [Kate Vitasek] collaborated on a Harvard Business Review article, "A New Approach to Contracts: How to Build Better long-term strategic partnerships". The authors advocated for a “formal” relational contract, asserting that "a formal relational contract lays a foundation of trust, specifies mutual goals, and establishes governance structures to keep the parties’ expectations and interests aligned over time."[13]

Further research on relational contracting resulted in the 2021 book Contracting in the New Economy: Using Relational Contracts to Boost Trust and Collaboration in Strategic Business Relationships. The book argues for adopting formal relational contracts as an alternative to transactional contracts and suggests formal relational contracts are well suited for strategic, complex and highly dependent contractual relationships. The Nobel laureate Oliver Hart's foreword in the book notes, “…for a long time I have felt that the traditional approach to contracts, where lawyers try to think of all the possible things that can go wrong in a relationship and include contractual provisions to deal with them, is broken.” Hart added that it “never worked that well, and in an increasingly complex and uncertain world it works even worse.”[14]

The book provides a comprehensive review into the history and theory behind relational contracting and provides a practitioner’s perspective that includes a five-step process for developing a relational contract:

  • Lay the foundation
  • Create a shared vision and objectives
  • Adopt guiding principles.
  • Align expectations and interests
  • Stay aligned[14]

Examples of relational contracts[edit]

Construction examples[edit]

  • Integrated Form of Agreement (IFoA) (USA) - developed for Sutter Health projects in California and used by some other healthcare providers
  • ConsensusDocs 300 (USA) - a derivative of IFoA
  • AIA C191-2009 Standard Form Multi-Party Agreement for IPD (USA)
  • AIA C199-2010 Standard Form of Agreement Between Single Purpose Entity and Contractor for Integrated Project Delivery
  • PPC2000 International (UK)
  • Alliancing Agreement (Australia) - not yet a standard form but moving in that direction
  • Integrated Project Delivery Agreement (Profit Deferred Until Final Completion)(USA)
  • U.S Department of Energy - transformation of a former weapons facility to a wildlife refuge[15]
  • FFG Enterprise: a collaboration underpinned by a relational contract between the Royal Australian Navy, Defense Industry, and the Capability, Acquisition and Sustainment Group (CASG)


  1. ^ I.R. Macneil, “Whither Contracts?” (1969) 21 Journal of Legal Education 403.
  2. ^ John Kay (March 16, 2010), Think before you tear up an unwritten contract, Financial Times
  3. ^ I.R. Macneil, “Contracting Worlds and Essential Contract Theory” (2000) Social & Legal Studies 9, 431.
  4. ^ I.R. Macneil, “The Many Futures of Contract” (1974) 47 Southern California Law Review 691
  5. ^ I.R. Macneil, “Reflections on Relational Contract Theory After a Neoclassical Seminar” in H. Collins, D. Campbell and J. Wightman (Eds), The Implicit Dimensions of Contract (Hart: Oxford, 2003).
  6. ^ I.R. Macneil, “The Many Futures of Contract” (1974) 47 Southern California Law Review 691; I.R. Macneil, “Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical and Relational Contract Law” (1978) 72 Northwestern University Law Review 340.
  7. ^ See, M. Eisenberg, “Why There is No Law of Relational Contracts” (2000) 94 Northwestern University Law Review 805; R. Austen-Baker, “A Relational Law of Contract?” (2004) 20 Journal of Contract Law 125.
  8. ^ See Wikipedia article Ian Roderick Macneil.
  9. ^ R. Austen-Baker, “Comprehensive Contract Theory: A Four-Norm Model of Contract Relations” (2009) 25 Journal of Contract Law 216.
  10. ^ See, e.g., T. Uchida, “The New Development of Contract Law and General Clauses – A Japanese Perspective” in The Organizing Committee (Eds), Proceedings of the Symposium: Japanese and Dutch Laws Compared (University of Tokyo Centre for Comparative Law and Politics Institute of Comparative Law: Tokyo, 1993).
  11. ^ "Unpacking Relational Contracts: The Practitioner's Go-To Guide for Understanding Relational Contracts"[1] 2016|Vested Way|accessed 26 October 2016
  12. ^ “Unpacking Relational Contracting”
  13. ^ Frydlinger, David; Hart, Oliver; Vitasek, Kate (1 September 2019). "A New Approach to Contracts". Harvard Business Review. ISSN 0017-8012. Retrieved 23 September 2021.
  14. ^ a b Frydlinger, David; Vitasek, Kate; Bergman, Jim; Cummins, Tim (2021). Contracting in the New Economy: Using Relational Contracts to Boost Trust and Collaboration in Strategic Business Relationships. Palgrave Macmillan. ISBN 978-3-030-65098-8.
  15. ^ Vitasek, Kate; et al. (2012). Vested: How P&G, McDonald's, and Microsoft are Redefining Winning in Business Relationships (1st ed.). New York: Palgrave Macmillan. ISBN 978-0230341708.