Building Societies with Better Contracts : the Role of Lawyers in Designing Effective Contracts for the Development of Infrastructure

Lawyers are engineers and architects of contractual frameworks — arguably equally important as those actually building the physical infrastructure and those financing it. Contracts are part of adequate legal governance that is considered one of the preconditions to be in place for effectively managing and finishing projects. In increasingly complex infrastructure development parties rely more and more on contracts when dealing with setbacks and claims. However, building complex infrastructure is not without challenges and the same is true for designing adequate contracts. Research shows that contracts often fail to provide the cooperation that is required to realize projects successfully, instead, they tend to fuel disputes and lead to costly litigation, delay, cost overruns, and sometimes to cancellation of projects. This article discusses how contracts perform as governance structures and how lawyers’ can — by their choice of contract design — impede or foster cooperative contracting behavior. An analysis of the literature on contract design and lawyers’ roles in contract design shows a lack of attention paid to cooperation. It then explains the dynamic between formal and informal governance and makes an argument for the potential benefits of taking into account non-legal drivers when designing the contractual environment. The latter part of the article suggests a new framework that lawyers might use to identify tensions between formal and informal governance structures. In addition, it maps the way certain design techniques can enhance cooperation by foreshadowing and eliminating these tensions when drafting contracts for infrastructure projects. The proposed steps can be utilized by lawyers as points of departure for tailoring contracts to the contract parties’ ‘cooperation preferences’. This article hopes to have a significant, beneficial impact on the role lawyers can have to help pave the way for the creation of physical structures for a modern, healthy, and prosperous society