Joint value creation: A functional, proactive approach to contract governance

Abstract

The recurrent series of crises demonstrates that supply chains are frequently susceptible to disruption. It is imperative they adapt to evolving economic, ecological, social, and geopolitical circumstances. Economists and management scholars have introduced contract governance models that facilitate adaptation and collaboration; however, these models have been largely ignored in the legal field. This article addresses a significant gap in the existing literature on commercial contracts, which is currently fragmented between legal, economic, and organizational perspectives. The article proposes a functional, proactive contracting framework focused on joint value creation. The framework integrates insights from transaction cost economics, relational contract theory, relational view, functional contracting, proactive contracting, and legal design. It provides an instrument for contracting parties to co-create contracts that enhance performance, reduce transaction costs, devise contingency plans, and utilize contracts as user-centric tools to support relational governance practices and sustainability. A case study on Finnish Alliance Model Contract Clauses demonstrates the benefits of this approach in fostering more collaborative and resilient commercial contracts.