Andrew Verstein, ‘Interim Contracting (or Ex Tempore Contracting)’

Decide for yourselves now, or let the judge decide for you later. This is the apparent choice presented to contracting parties when they decide whether to raise and negotiate a specific contract term. This ex ante/ex post dichotomy, implicit in contract literature for some time, has become increasingly explicit in attempts to model the optimal contracting and contract interpretation process. Yet this dichotomy obscures what has been hiding in plain sight: parties frequently leave terms unspecified, while delegating ongoing determination to someone other than an adjudicator.

This Article introduces the phenomenon of interim or “ex tempore” contracting through several case studies. Using a unique cache of data only recently made available, it explores a novel dispute management system now prevalent in the construction industry that calls for the use of “dispute boards.” These expert panels radically reduce the cost and frequency of litigation by determining the parties’ responsibilities whenever the parties wish, including in the course of performance. Yet interim contracting is not merely a dispute resolution system for the construction industry. Interim contracting also backstops most financial derivatives and contracts with variable price terms, like subprime mortgages. The pervasiveness of ex tempore contracting has profound implications for judicial interpretation of contracts. It casts doubt on the use of penalty defaults, weakens the case for interpretive formalism, and urges judges to accept, rather than hinder, parties’ choice to rely on ex tempore contracting.

Verstein, Andrew, Interim Contracting (or Ex Tempore Contracting) (August 6, 2012).

First posted 2012-08-07 07:02:38

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