Towards the Electronic Contract

Michal Morciniec, Claudio Bartolini, Brian Monahan, Mathias Sallé

Hewlett-Packard Labs

Filton Road

Stoke Gifford

Bristol BS34 8QZ



1          Introduction

In recent years we have witnessed an explosion of business applications exploiting Internet as a communication medium. Initially, on-line catalogues and shop fronts have been deployed followed by auction sites and finally business-to-business (B2B) infrastructures [Sculley 1999].  Electronic marketplaces are e-commerce infrastructures that aggregate potentially large numbers of buyers and sellers and allow them to interact according to a variety of market mechanisms such as request for quotes, reverse auction or exchange resulting often in significant cost saving. They rapidly evolve towards trading of web services rather than commodity goods.


As each enterprise tries to maximize its goals, conflicts of interests are certain to appear. Possible concerns [Favier 2000] range from security of transactions, fairness of the market mechanism, anonymity, identity of business partners to service performance. We feel confident that adequate solutions can be provided for most of the technology related concerns, however, a technology gap exists in addressing concerns that have their roots in the societal aspects of business interactions.


In the real-world the contracting process together with the established institutions and adequate enforcement and trust mechanisms provide an answer to these concerns. We assert that reification of this process will be required in order to enable enterprises establish and manage dynamically changing business relationships that can be formed in the electronic marketplaces.


2          Electronic contract

A contract is a statement of intent that regulates behaviour among organizations and individuals. An electronic contract is its reification in software that can be instantiated as a set of obligations that are fulfilled between parties, refused or waived as future events occur. Because the contract parties are assumed to be autonomous and self-interested, conflicts will occur, and an appropriate resolution mechanism is required.


An electronic contract can be viewed through transformations that are applied to it during its lifecycle in the electronic marketplace. Further, there is an information viewpoint that shows (document) objects that can be observed at the beginning and termination of each stage. Conceptually, the lifecycle can be split into the three stages of contract drafting, formation, and execution.


Contract drafting phase – Given the contract template model, the drafter role constructs an instance of the template. In this phase the contractual roles, abstract business interactions and contractual situations are specified. Furthermore, if the drafter acts as a regulator, rules and constraints can be added which should be adhered to during the contract execution phase. The template typically has a number of free variables that are agreed upon in the next phase.


Contract formation phase - Participants assume contract roles and negotiate the details of their responsibilities. The negotiable variables of the contract (deadlines, order of actions) become fixed, and concrete business interactions are bound to the abstract ones defined in the template. The relationships between contract parties are created and are captured in the contract statements using the policy expressions that imply obligations and rights of parties.


Contract execution phase –Actual delivery of contract consideration happens. Typically this phase constitutes service or goods delivery, invoicing, bill calculation, presentment and payment. The interactions between the parties may be monitored for their conformance to the terms of the contract.


3          Scope of the proposed work

Standardization effort is required to enable enterprises to interact with each other and electronic marketplaces. The scope of the effort is broadly related to the provision of a contracting framework in the context of electronic marketplaces. More specifically it includes the following:


  1. Definition of the structural model for electronic contract (means to capture contractual commitments) that includes relevant information objects related to the contract during its lifecycle


  1. Definition of the main phases and roles involved in the contract lifecycle and transformations applied to it.  In particular,



  1. Specification of the protocols used by the relevant roles to achieve these transformations.  In particular,


·        Protocol used for contract formation;

·        Protocol used for contract fulfillment;


  1. Interfacing of the contracting framework components with other components in the enterprise.


4          References

[Sculley 1999] Sculley A.B., William W., Woods A., 1999, “B2B Exchanges : The Killer Application in the Business-to-Business Internet Revolution”, ISI Publication.

[Favier 2000] Favier J., 2000, “eMarketplaces Face the Law”, the Forrester Report, October 2000,