Legal and procurement teams have mastered the art of the ironclad contract. These documents — designed to clarify expectations, define scope and deliverables, and establish legally binding clauses — protect both parties’ interests. Their intention is to mitigate risk by defining the entire contracting relationship upfront. For traditional engagements with defined scopes, these contracts are enough to give executives the sense of security they’re seeking.
But for more complex work with adaptable scopes, traditional contracting falls short. Defining a contract by its deliverables sets contracted Agile teams up for failure. It’s impossible to predict innovative solutions, so instead, these contracts are developed on guesses and wishes of an uncertain future.
In Agile work environments, change is the only constant, and work develops in dialogue and sprints. Here, teams need room to innovate without superfluous constraints. Trying to articulate deliverables with specificity before these sessions begin impedes the flexibility teams need to facilitate meaningful collaboration.
To deliver Agile, establishing common goals and nurturing relationships between management and delivery teams is the order of the day.
These relationships demand a new kind of contract — an adaptable-scope contract — to set the stage for how teams work together. Adaptable-scope contracts are designed to help teams jumpstart their working relationship and build trust with contractual rules of engagement, particularly when the desired end state isn’t clear.
In this paper, we’ll explore why traditional contracts aren’t designed to support Agile services, and we’ll contrast that with how people are adopting new contracts to facilitate these relationships. Then we will explain how you can start improving your contracting processes for complex engagements today.
Does certainty exist in modern contracts?
Modern contract development is an exercise in eliminating ambiguity, but companies waste a lot of time and resources trying to conjure 100% certainty before signing an agreement.
On average, it takes companies over 30 hours of work to develop and sign a single contract. Contracting Agile services (CASe) can take even longer as organizations try to painstakingly define the scope, deliverables and measurable outcomes to guarantee business value. Trying to introduce all this detail for CASe — the process of contracting teams trained in Agile practices to facilitate Agile deliveries — results in producing not an enforceable contract, but an elegant wish list offering a false sense of security.
In traditional transaction contracts, the statement of work includes clearly defined deliverables and outputs. These contracts fall short in Agile environments because they don’t allow teams to iterate effectively. Comparatively, consumption contracts facilitate a capacity-as-a-service (CaaS) model, allowing organizations to leverage Agile teams to work toward desired outcomes (see figure below).
Part of the problem with CASe is that organizations aren’t clear how to define contributions from Agile teams in outputs (the deliverables teams generate to realize a goal) and outcomes (the efficiency and business improvements that result from launching those outputs). While Agile teams can provide business value through their outputs, they need room to discover and deliver those outputs organically. Specifying outputs before beginning the work stifles team collaboration and limits access to the benefits Agile is known for, namely speed, innovation and flexibility.
Assigning Agile teams contractual responsibility for outcomes poses a problem, too. Efficiency and business outcomes are dependent on the work of multiple teams, so Agile teams may not have direct control over these KPIs.
Ultimately, this erroneous focus on outputs and outcomes delays innovation and causes teams to underperform or miss opportunities to solve big problems.
Today’s contracts leave teams trapped in distrust
If the traditional contract represents a square peg, Agile contracting is the dreaded round hole.
Experimental work is about solving new problems; novel solutions are seldom found along familiar paths. Traditional contracts demand that teams follow those familiar paths to satisfy risk-averse requirements. That means in lieu of collaboration, a team’s rules of engagement are only to complete the predefined deliverables within the designated timeline. Contrast this with the flexibility that is a cornerstone of the Agile process. It’s nearly impossible to empower a contracted team to follow Agile practices without necessitating change orders and contract updates. It’s unrealistic to constrain the Agile process and expect it to generate innovative results, yet traditional contracts do just that.
This puts businesses in a difficult position: Should they leave themselves legally exposed with a vague contract, or tie their teams’ hands with a stringent one that may underperform?
When to use CaaS. Can you tame the beast? Though large, an elephant can be tractable and controlled like traditionally scoped project work. In contrast, a buffalo is nearly impossible to control, similar to a standard Agile project. While an elephant-type project fits within traditional working styles, the buffalo-type project calls for CaaS.
There is an alternative, but legal and procurement teams must put to rest their preoccupation with certainty. Rather than defining contracts by outputs or outcomes, organizations need to shift their focus to a new target: establishing trust in the processes that facilitate a team’s work. Only then can trust develop between the organization and a contracted partner.
A relational, trust-based contracting approach — one that establishes how teams work together based on mutual goals — can be as effective as traditional contracts in reinforcing work behavior and delivering desired results. Designing contracts based on trust can even encourage teams to be more productive. The Trust Edge Leadership Institute found that 94% of Americans believe team trust plays a role in their work performance,ii and Cerby found that 81% of employees feel more energized, happier and more productive when they believe their employer trusts them. To that end, 50% claim it’s an employer’s job to establish trust within the workplace.
A relational, trust-based contracting approach — one that establishes how teams work together based on mutual goals — can be as effective as traditional contracts in reinforcing work behavior and delivering desired results.
In these contracts, predicting the future and defining success by output falls to the wayside. In its place, organizations establish defined rules of engagement — like the rules of tennis or basketball — that allow teams to hit the ground running on experimental work.
Legal resources can find it discomfiting to explore all the scenarios that might create risk in contracts for adaptable-scope work. Meanwhile, organizations with pressing problems need strong teams ready to dive in and solve them by any means necessary. Plus, departments must secure the talent they want and stay ahead of their competition.
To address these divergent organizational pressures, adaptable scope contracts must be built on trusted processes to predefined how teams will work together and with a stage gate to mitigate risk. A stage gate allows either party to terminate the contract if the relationship isn’t working. This provisional exit plan reveals the dichotomy of trust-based relationships: The easier it is to exit the relationship, the more work both parties must invest in the relationship to make it worthwhile.
While building these trusted processes into a contract doesn’t solve all the issues, it’s a way to articulate “how,” even when “what” may be elusive.
About the authors
Björn Lundin is a business consultant with DXC Technology in Sweden. He helps leaders use Agile methods to improve collaboration between business and IT within organizations and across companies. He is an expert in outsourcing Agile services and creating innovative contract designs, and provides guidance to industry advisors such as Gartner and ISG. Currently he focuses on the Security organization. Connect with Bjorn on LinkedIn.
Mattias Skarin is a former software developer turned transformative catalyst, coaching and training companies in revolutionizing their software approaches. His expertise in Agile transformations spans organizations, from scale-ups to global enterprises. Mattias co-founded agilakontrakt.se, to share his knowledge of Agile contracting and procurement, and founded platform Active Agile Leadership. Connect with Mattias on LinkedIn.