The problem

Contracts provide the usual mechanism by which business relationships between two or more parties are established.

A contract sets out the parties’ individual rights and obligations between each other. It needs to cover all the main issues that might arise in relation to the subject matter, which means that the parties need to foresee the various risks that could occur. That’s because the purpose of a contract is to create certainty – the knowledge that each party has covered its key concerns and can enforce the contract in court if necessary.

Many contracts are entered into from a position of inequality, where one party is at a considerable disadvantage. Employees, contractors, tenants and consumers generally have no choice about the terms which they need to accept. The problem is that the purpose of the contract is to create certainty rather than to achieve fairness or neutrality.

The impact

Contracts and standard terms and conditions just keep getting longer and more complex.

Contracts are rather brittle and can be a bit of a gamble. Unless the parties foresee particular issues and adequately provide for them, then where unforeseen things happen – a pandemic, a major change in government policy – the contract cannot respond to the situation.

Contracts which have been entered into from a position of inequality tend to perpetuate that inequality.

In search of a solution

There is another way of establishing business relationships other than through contracts, where parties are willing to work collaboratively together, rather than competitively just looking out for their own private benefit.

Parties who want to work collaboratively can establish co-operative arrangements, which set out instead a mechanism (“governance”) by which they agree how they will work together to address issues as they arise.

They don’t need to foresee every eventuality; they have an agreed decision-making framework within which they will together address issues as they arise.

The parties agree that whatever events occur, they will work together to secure a fair or neutral outcome, so that nobody loses out.

Such an approach seeks to avoid inequality.

This is the co-operative approach to business.

For this approach to become more widely available, an open and accessible mechanism is needed.

This is at the heart of what the Innovation Cooperative seeks to provide.