The Contract is a concept, a mental construct that we use to understand and tweak the expectations at stake in any relationship, whether it’s business or personal. Every relationship has a Contract. The Contract is the totality of explicit and implicit expectations that define the operating rules of the relationship, whether we are aware of them or not––every relationship comes with a Contract.
The Contract is the totality of explicit and implicit expectations that define the operating rules of the relationship. Every relationship has a Contract.
Some Contracts are explicit, visible, and understood by all parties in a relationship, such as a written statement of work from a vendor or the offer letter to a new employee spelling out the job description, benefits, bonus structure, and the you-do-this-I-give-you-that details. Like the tip of an iceberg, these Contracts are seen by all parties and well-understood. The expectations are out in the open and clearly defined. We call these the Brand Contract and Transactional Contract, but what’s underneath the water. We all know the iceberg has a larger mass that dives deep into the water yet remains unseen. We call this the Psychological Contract. These are the implicit expectations that aren’t openly or clearly defined yet exist within every organization and relationship.
The Three Contracts
Every contract is made up of three sub-contracts, as mentioned earlier:
The Brand Contract is how we are viewed publicly or are seen by others. It consists of the promises that our brand identity––what we profess to be and what we stand for as an organization or team––makes to the people who are exposed to it.
The Transactional Contract is the mutually accepted, reciprocal, and explicit agreement between two or more entities that defines the basic operating terms of the relationship.
The Psychological Contract is the unwritten, implicit set of expectations and obligations that define the terms of exchange in a relationship.
Why is The Contract between employee and employer like an iceberg?
Like an iceberg, only part of the Contract is openly visible to all parties involved. Not every expectation makes its way into the written Contract. The implied part of any Contract is what carries the weight of the subconscious, unspoken expectations that each party brings to the relationship. These implied Contracts are the type your grandfather meant when he talked about doing business based on a handshake back in the day––nothing formal, other than the mutual belief that each party would act with the best interest of both sides at heart. With this Psychological, or implicit, Contract, trust is everything. Without it, there’s no deal.
So a Contract is really like an iceberg: You might see the written, express part bobbing above the water, but the larger part––the implied part––is submerged. The implied component is the most important section of any Contract, and that’s where things can go sideways. This is where Expectation Alignment Dysfunction runs rampant.