They are particularly useful for complex purchasing agreements, outsourcing, strategic alliances, joint ventures, franchises, public-private partnerships, large construction projects and collective agreements. “We were no longer interested in developing a single contract,” recalled Jean Maskey, a South Island hospital physician, who co-led the contract team, “but to build excellent relationships on multiple levels that would allow us all to be leaders in Canadian public health, whether as administrators or hospital physicians.” It`s perhaps no surprise that most businesses – and especially their legal advisors – feel uncomfortable with informal handshake operations, especially when the stakes are high. Indeed, many companies today believe that even the vaunted Keiretsu model, which Toyota and Nissan, among others, have used so successfully, commit capital and limit flexibility. The formal relationship contract corrects these shortcomings. The company assigns most of the basic work. Early research by one of us (Oliver, who won the Nobel Prize in Economics in 2016 for his work on contracts) predicted that companies would most likely make skewed investments, which result in poor results, in response to the combined problems of overtense and incomplete contracts. For example, using multiple providers instead of just one increases costs; as well as the functioning of a parallel organization. Termination clauses encourage suppliers not to invest in business relationships. “A 60-day termination for convenience leads to a 60-day contract,” a supplier`s CFO told us. “It would be contrary to our fiduciary responsibility to our shareholders to invest in a program for a client with a 60-day termination clause that takes more than two months to earn a return.” The implications of innovation are obvious. “Buyers are crazy to expect us to invest in innovation when they calculate.” Buyers need to consider three key factors when deciding what kind of contractual agreement is right for each supplier relationship….