=Paper=
{{Paper
|id=Vol-30/paper-8
|storemode=property
|title=Business Contracts for B2B
|pdfUrl=https://ceur-ws.org/Vol-30/paper8.pdf
|volume=Vol-30
|dblpUrl=https://dblp.org/rec/conf/isdo/GoodchildHM00
}}
==Business Contracts for B2B==
https://ceur-ws.org/Vol-30/paper8.pdf
Session 4: Electronic Contracts
Business Contracts for B2B
Andrew Goodchild, Charles Herring and Zoran Milosevic
Distributed System Technology Center (DSTC)
Level 7, GP South, The University of Queensland, QLD, 4072, AUSTRALIA
Email: [andrewg, herring, zoran]@dstc.edu.au
Web: http://www.dstc.edu.au
Abstract A fundamental issue faced by many developers of
B2B systems is how to ensure that you can trust a
This paper presents an approach for the party that you are dealing with at arms length. The
specification and implementation of business primary mechanism for doing this is by setting up a
contracts needed for Business-to-Business (B2B)
services. We first examine typical elements of
business contract and depending on the law to enforce
business contracts and their usage. This analysis the terms of the contract. The aim of this paper is to
sets a foundation for 1) modeling contracts and 2) provide mechanisms to facilitate electronic business
developing a role-based architecture that supports contracting. This involves support for electronic
typical operations in the contract’s lifetime. We contract representation and also support for various
explore how contracts can be encoded in XML and contract operations. Typically, these include contract
present an approach for monitoring and enforcing negotiation, validation, signing, tracking, monitoring
of contracts. This approach provides a flexible way and enforcing contract terms and conditions
of modifying rules of enforcement, as trading
arrangements change. A real-world contract
example is used to illustrate the concepts described.
Section 2 starts this paper off by stating the
requirements for business contracts in the context of
B2B. Section 3 outlines a role-based architecture to
1. Introduction support typical contract operations. Section 4 explains
Many enterprises are eager to take advantage of the how XML can be used for the specification of
emerging "Internet Economy". Internet based business contracts. Section 5 presents an approach of
commerce offers more potential than just online using BizTalk technology to support the monitoring
storefronts (a.k.a. Business-to-Customer (B2C)) and of business contracts. Section 6 concludes the paper.
auction sites (a.k.a. Customer-to-Customer (C2C)), it
also offers opportunities in Business-to-Business 2. Business Contracts for B2B
(B2B) e-commerce. B2B covers the area of online
exchange of information between trading partners. A contract is a legally enforceable agreement in
Some examples of B2B include: which two or more parties commit to certain
obligations in return for certain rights [R89]. In a B2B
• Trading partner integration between enterprises, context this can range from a simple one-page
forming supply and value chains and allowing purchase order for the sale of goods, to an extremely
automated coordination of business operations complex thousand-page document for a trade level
(e.g. order management, invoicing, shipping and agreement between multinational businesses.
government procurement).
In general, most B2B scenarios can be generalized to
• Business process integration. Integration of a 5-phase trading process, of which contract
commerce sites, Enterprise Resource Planning formation is one phase [C93]:
systems and legacy systems.
• Pre-contractual phase: customers identify
• Business-to-business portals enabling formation products or services and possible sources of
of trading communities, electronic catalog supply;
management, content syndication, and post-sale • Contractual phase: creation of a formal
customer management. Example sites include relationship between buyer and seller, covering
www.mySAP.com, www.I2I.com and contract negotiation and validation operations;
www.ariba.com. • Ordering and Logistics phase: placing of
purchase order, delivery of goods and services;
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Session 4: Electronic Contracts
• Settlement phase: invoicing, payment
authorization and payment; and A sample contract illustrating these elements is
• Post-processing phase: gathering information for provided in appendix A.
management reports, e.g. trade statistics.
In the context of B2B, many of the terms and
The focus of this paper is on the contractual phase conditions in the contract will form part of the
and in particular supporting electronic contract software requirements that specify behavior of a B2B
representation and contract monitoring and enforcing system. For example, terms and conditions associated
operations. with invoicing and payment will dictate what forms
of electronic invoices are acceptable, when they are to
2.1 Elements of a Business Contract be received, and how the payment is to follow. There
will also be many terms and conditions that cannot be
There are up to four elements needed to create a valid implemented (or are only partially automatable) and
business contract [R89]. First, an agreement has to be would require human actions and interventions.
reached on all essential conditions of the contract.
The second element is the notion of consideration.
Each party establishes the obligation to give 2.2 Standardizing Contracts
something to each other. Consideration can take the In some business environments, such as insurance,
form of money, services rendered, property or cargo, real estate and banking, it would become
individual rights. The third element is that of capacity highly complicated and costly if the terms of every
(or competence): ensuring that parties entering into contract had to be newly settled for each transaction.
the contract are lawfully capable of agreeing to Significant savings can be achieved by reusing
contracts (e.g. whether an individual has the authority standard form contracts for newly established contract
to represent their organization). Finally, the legal agreements [T95]. The terms of such standard
purpose of the contract must be established. A contracts can be dictated by one party (e.g. the seller)
contract cannot be enforced unless the actions agreed or by a third party (e.g. in Queensland the Rental
upon are legal in the jurisdiction where the contract is Tenancy Authority sets out a standard lease
made. agreement for all leases in Queensland). Standard
form contracts are also available for a fee from
In general, each of these elements will appear in a commercial organizations2, which will provide
business contract as clauses covering [FL96]: general-purpose contracts for many business
• The description of parties involved, including: situations.
names, addresses, roles etc;
• The definition and interpretation of terms used in In some instances, new contracts can include standard
the contract; contract clauses [FL96]. For example, some large
• The jurisdiction under which the validity, institutions, like universities and government
correctness, and enforcement of the contract will departments, may outline policies on standard
operate; contract clauses to be included in all contracts of a
• The duration and territory1 of the contract, which certain nature. In some cases standard contract
defines the times and places at which the contract clauses are defined by a standards body and are in use
is in force; between many businesses. For example, the
International Chamber of Commerce (ICC) 3 has
• The nature of consideration e.g. fees, services
outlined a set of "Incoterms" for use in specifying
rendered, goods exchanged, rights granted, etc;
departure, shipment and arrival terms in international
• The obligations associated with each role, which
sales contracts.
is expressed in terms of the criteria over the
considerations. This includes terms and
In terms of B2B, standard form contracts are
conditions for invoicing and payment such as
essential, as they allow business to confidently
warranties, delivery, liability, rejection,
operate at arms length. A business can deal with
termination and accounting provisions.
another business without the need to negotiate a new
1 contract for each transaction. Furthermore, the
Note that the territory of a contract refers to what standardized nature and the regular use of standard
geographical areas the contract covers. Whereas the form contracts means that many elements are stable
jurisdiction of a contract refers to which location’s enough to be implemented as components in a B2B
laws the contract is subject to. For example, the
territory of a contract may cover all trade between
2
two parties in Brisbane, and the jurisdiction may be for example: http://www.legaldocs.com/
3
covered by the laws of the State of Queensland. http://www.iccwbo.org/
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Session 4: Electronic Contracts
system. Finally, as many standard form contracts conditions, and liability due to failures or
share similar elements and contract clauses, there malfunctions. Discussion of these rules and their
exists the possibility to reusing components in implications is out of the scope of this paper.
different B2B systems.
3. Key Contract Related Roles
2.3 Support for electronic contracting for B2B Applications
operations Based on the above requirements for business
contracts in B2B systems, we have identified the
The discussion in the above subsection suggests that basic roles needed to support typical operations
the availability of electronic representation of associated with contract establishment, monitoring
standard contract forms and clauses can bring and enforcement [MB95, MAL96]. These roles are:
significant savings to the process of creating and
negotiation contract terms. Electronic contract forms The Contract Repository (CR) is needed to store
can be stored in an electronic repository that can be standard form contracts and standard contract clauses.
subsequently accessed and used by businesses to
facilitate the definition of their mutual obligations. The Notary is used to store signed instances of
standard form contracts which, can later be used as
It is important to note however that by electronic evidence of agreement in contract monitoring and
contracting we do not only mean an electronic version enforcement activities.
of contract forms but also a wide range of
possibilities related to the automation of the typical The Contract Monitor (CM) enables monitoring of
contracting procedures or processes such as: the activities of parties by measuring their
conformance to contractual terms and conditions and
• location of suitable contract templates and/or signals the contract enforcer if it detects a violation.
contract clauses,
• electronic negotiation of contracts, The Contract Enforcer (CE), upon being signaled by
• electronic signing of a contract, and having this the CM, performs enforcing actions such as sending a
as an evidence of the agreement; this can bring message to various parties informing them of the
significant savings, in particular in cases where violation and possibly preventing further access to the
contracts involve multiple, geographically system by non-conforming parties.
distributed trading partners, such as those related
to international contracts, The Contract Validator (CV) ensures the creation of
• electronic tracking - This allows timely reaction legally valid contract instances by checking the four
to some important deadlines such as contract aspects of contract validity (discussed in 2.1):
termination, thus making it possible to re- • Competence. To accomplish this, the CV verifies
negotiate a subsequent contract and put it in the capacity of parties willing to enter a
place, before or immediately after the existing contractual relationship.
contract terminates. • Clarity. In most cases the contract semantics will
• monitoring of the behaviour of the trading be unambiguous if it is derived from a template
partners who have entered in contractual in the CR. The CV can be used to provide
relationship and, possibly, additional checking if needed.
• enforcing behaviour of trading partners so that • Legal purpose. The legal purpose of a clause or
their contractual operations are met. contract can be validated based on information in
a repository of legal rules.
• Consideration. The CV can ensure the contract
2.3 Legal Enforceability of B2B contains contract elements describing what is
Contracts exchanged between the parties.
An essential element of trust in a B2B system is the
legal enforceability a contract. In order to create Some elements of contract validation are very
certainty for electronic contracts, legal groups, such difficult for a computer to perform. For example, the
as American Bar Association (ABA), have clarity and legal purpose elements are very difficult to
established several rules for enforcement of a model and verify. Attempts have been made in the
area of deontic logic, however, this work is still
contracts in the B2B area [W94]. These rules cover
issues such as fraud, transmission and receipt of preliminary [TT98]. One approach to address this
messages, evidentiary concerns, prior terms and problem is to establish some systems of credentials
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Session 4: Electronic Contracts
that would guarantee legal validity of contract • A preamble which outlines the parties involved
templates. in the contract and the nature of the
consideration;
Some elements of contract validity are possible to • A list of contract clauses, clustered in logical
Figure 1: Elements of a business contract template
automate, such as checking the consideration aspects groups. In some cases, a contract clause itself
(by inspecting signed contract instances) and may be a pointer to a standard contract clause
competence aspects (by enforcing rules for signing provided by an external institution;
contracts by people with the legal authority to do so, • An approval section which enumerates whom
as discussed in [MAL96]). from each party approved the contract; and
• A digital signature section with digital signatures
The Contract Negotiator (CN) is an optional role that from the appropriate parties listed in the approval
can be used to mediate the negotiation of contracts in section; and
the pre-contractual phase. Automated contract • Finally, a separate section contains a list of policy
negotiation is another area with significant challenges specifications stating contract enforcement rules
as much of this work requires reasoning about the according to the agreed contract clauses. This
effect of obligations outlined in a contract and then aspect will be explained in detail in section 4.2.
negotiating based on this. Some attempts to solve
related problems have been made in the area of 4.1 Describing Contracts
intelligent agents [S96].
In this paper, we will be encoding this model using
XML. Given the textual nature of business contracts,
4. Use of XML technology to XML is the logical choice for capturing the structure
support contracts of a contract while preserving the text of the contract.
Based on the analysis of contracts presented in Furthermore, essential pieces of emergent XML
section 2.1, we have defined a model for contracts. infrastructure can be used to advantage, namely:
The model (shown in figure 1) for a contract is CBL, XML-DSig, XSLT, and XML repositories as
broken down into the following elements: will be discussed in the following sections.
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Session 4: Electronic Contracts
4.1.1 Use of CBL implemented using the same repository
implementation choices as above.
Common Business Language (CBL), devised by
Commerce One4 defines a set of XML documents and
The signing of contract instances can be facilitated
XML building blocks that enable businesses to
using XML-DSig compliant signatures. XML-DSig8
assemble e-commerce applications quickly. CBL has
is a digital signature standard currently being jointly
made important contributions to CommerceNet’s
worked upon by the W3C and IETF. The use of such
ECO5 semantic recommendations and is available in
signatures will prevent fraud by providing
the emerging XML.org and Biztalk.org repositories
mechanisms to guarantee integrity, authenticity and
and the "electronic business XML initiative"6. CBL
privacy of XML documents. Further protection can
provides a “document service architecture” enabling
also be achieved by using a third party, such as
the exchange of:
Verisign9, as a certificate authority to prevent the
tampering with of signatures by one of the parties.
• Documents to send, reply to and check the status
of purchase orders;
Finally, to facilitate human user viewing of contracts,
• Documents related to invoices; an XML contract can be rendered in HTML by using
• Documents used to check the price and a transformation technology like XSLT10. This
availability of goods; and implementation detail is beyond the scope of this
• Documents used to maintain product catalogs. paper.
Each of these documents is built out of smaller
elements, such as elements for customer details,
4.2 Describing contract policies
delivery information, product descriptions, names, In this paper, the contractual terms and conditions are
addresses, list of part numbers, prices, currencies, modeled as a policy which specifies that a role is
countries, dates, etc. This is an important feature as it either forbidden or obligated to perform actions under
already provides elements that can be reused in a certain conditions. Each of the contract clauses can be
business contract specification. regarded as a high-level policy statement. However,
these statements need to be further refined so that
CBL also provides the concept of a contract, which is they express constraints on the actions that parties
very brief and only includes a contract identifier and involved in contract need to fulfill – as a result of
start and end dates. In this paper we have taken the their contractual obligations. These actions can then
CBL contract and extended it to include the additional be monitored, if required, and if they do not comply
elements illustrated in figure 1. with those agreed in the contract, then the Contract
Monitor can signal this non-performance to the
Appendix B provides an example of a CBL-based Contract Enforcer to perform an action on a specified
description of the contract introduced in Appendix role.
A 7.
The formulation of this policy system has been
4.1.2 Other Related XML Technologies influenced jointly by the Event-Condition-Action
(ECA) paradigm from active databases [UW97] and
The standard form contracts are stored in the Contract the ODP enterprise language [SD99]. The core part of
Repository. This can be implemented using any the grammar for this policy system is formulated as:
number of existing XML-enabled repositories, such
as relational databases provided by Oracle, Informix, ::= *
Sybase and Microsoft. Specialized XML repositories when
can also be used.
must [not] occur where
The agreed upon and signed contract instances are otherwise ;
stored in a Notary repository, which can be ::= action(, ,
,