About Contracts That Support Agile Ways of Working

Tweet

One of a few under-served (ignored) dimensions of agile transformations that frequently limit chances for success is vendor management – and it can be traced back to legal contracts between a client company and supplier/vendor.

Vendor management norms and guidelines define relationships and interaction between a company’s own employees and external workers, individually and in team-level settings.  Unfortunately, this issue is not always obvious and therefore, is neither explicitly raised by inexperienced agile coaches, nor adequately addressed by senior leadership that is satisfied with limited results (could be also a sign of complacency).

There is a lot of improvement required in how corporate attorneys and vendor managers define, initiate and maintain external relationships with third parties.

This post provides a short summary of recommended improvements – they are  listed below.  It is based on a more comprehensive excerpt: Agile Contracts Primer, by T. Arbogast, C. Larman, B. Vodde.

(Also, please refer to Top-5 high-level recommendations for what to look for in vendors, selected for agile projects, in “Survival List to Vendor Selection on Agile Projects”)

Recommendations for Attorneys and Vendor Managers:

• Acknowledge that Legal, just like Finance and HR can diminish project success if not considered as a part of agile ecosystem
• Get rid of false dichotomies around the 3^rd Agile Manifesto value: “just because we value customer collaboration than contract negotiation, it does not mean that a contract has no value” ?
• Make sure that attorneys understand that a “successful contract” is not the main goal.  It is a successful project or product (delivery) that is the main goal.
• Draw analogy between software project complexity and your own (if you are an attorney) legal work complexity, to appreciate how difficult it is to do precise upfront estimation on huge, unpredictable body of work
• Understand how agile approaches can lower (not completely remove) friction around, such areas of contract negotiation as liability, warranty, payments, pricing, deliverable
• Understand that external legal contracts have downstream impact on internal non-legal contracts – relationships between people
• Understand repercussions of subjective incentives and rewards (bonuses), given to attorneys for legal outcomes (event if they are successful), instead of focusing on an overall project success
• Understand/study agile and iterative development (e.g. Scrum, Kanban), system thinking concepts, lean principles and agile project assumptions differ from traditional project assumptions
• Gain strong grasp of what Acceptance Criteria, Definition of Done, PSPI and MVP mean
• Study how continuous deployment and incremental development can reduce risk and exposure, as oppose to sequential/waterfall SDLC that usually  increases it
• Understand positive implications of agile ways of working Limited Liability and Warranty, Deliverable and Pricing
• Specifically, with regards to Pricing, understand:
  • Variations of T&M contracts and why they are good for agile projects.  For example:
    • Fixed price per iteration (per unit of time), fixed-price per large project
    • Fixed price per unit of work
    • Pay-per-use models
    • Hybrid shared pain/gain models
    • Capped-Price, Variable-Scope vs. Capped-Price, Partial-Fixed-Scope vs. Fixed-Price, Variable-Scope
    • Target-cost
  • Reasons why FPFS contacts are least desirable/most risky and what are some of the ways of lowering such risks
  • Difference between flexible scope without and with penalty (shared gain/pain)
  • Early termination – does not mean failure

Conclusion

Contracts are not necessarily always bad.  Having an external, legal contract between a client and a vendor/service provider/supplier is perfectly normal and even necessary.  It is the form of a contract that matters, as it has downstream effect on dynamics and behaviors between people within a client company, as well as between the parties.

To produce a meaningful contract for an agile project, an attorney should have good understanding of what is valued most in agile work, by agile teams, and optimize his/her own work for the benefit of an overall project, not just for having an amazing contract (locally optimized for an attorney’s benefit).  To gain such understanding a legal professional needs to invest significantly in studying principles of agile/adaptive product development (e.g. Scrum, Kanban), lean and system thinking.

Some of the above listed contract types are more supportive of agile work than others and each once must be explored in detail for suitability, depending on unique organizational settings.