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The certainty of contracts

19 Jul 2012

| Author: Rob Smith

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The certainty of contracts

Yesterday I had a discussion regarding Agile contracts with an analyst from a leading business and technology research organisation. The discussion quickly turned to the well-worn topic of how to provide the types of “guarantees” and “confidence” offered by a fixed-price contract in an Agile world.

There is, of course, no easy answer. The responsiveness required by Agile demands a different commercial approach, with new governance controls. The most appropriate contract type will be dependent upon the relationship with the supplier.

If high levels of trust exist, and suitable governance safeguards are in place, then it is possible to have a flexible contract that enables full value to be delivered from Agile. However, what this does not give is a fixed deliverable for a fixed price demanded by many (particularly in Government). But in reality, what does?  Fixed price contracts certainly don’t.

To illustrate this, I was reminded of a favourite anecdote of a colleague of mine. A number of years ago when working on a failing fixed-price project at a large systems integrator, he was involved in a crisis meeting to decide how to address the commercial challenges of the project. It was agreed that they had three options: deliver what is required to ensure that they would not lose if sued; deliver sufficient functionality to avoid being sued; or deliver enough to ensure a (relatively) happy customer at the end of the day. The difference between the three options, all valid within the scope of the contract and specification, amounted to approximately 40% of the total project size.

There may not be a universal panacea for Agile contracts, but neither does one exist for fixed-price Waterfall. Until this truism is accepted, it will be difficult to construct contracts that provide confidence to customers and the flexibility required for suppliers to provide maximum benefit.

If your organisation is seeking support in managing procurement for Agile projects and programmes, please get in touch.

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Rob Smith

Joint founder of IndigoBlue in July 2002, Rob has over 20 years’ experience in IT, and in addition to leading the company he continues to provide strategic management consultancy to a number of clients.

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