Contracts in the Age of Agility

“Fixed price, fixed deliverables, and fixed schedule” contracts are just about the worst way to write contracts involving software, yet they are the most popular – so what are some techniques to use to fix that?

Organizations that perform professional services for software development or develop software on a work for hire basis are usually engaged bound by extensive contracts.  These contracts are typically characterized as “fixed price, fixed deliverables, and fixed schedule.”  These, of course, are the vertices of the “Iron Triangle of Software Development” and foreshadow a poor outcome due to issues that make the requirements gathering and project estimation phases that precede contract negotiation so prone to error.

Given this, the question becomes one of “how can I engage clients in a way that allows us each to achieve our goals?”  If Agile and Lean methods are the status quo for good development practices, how can I write contracts for development services that embrace this mindset and let each side achieve it’s goals better?  This lecture and roundtable explores the many facets of this question and provides the attendee answers that they can use going forward.

 
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Outline/structure of the Session

This talk was given before at Software Arhcitect 2012.  It will be reduced and tightened up to fit the timeslot.

Learning Outcome

  • "Fixed price, fixed deliverables, and fixed schedule” contracts are the contractual embodiment of waterfall thinking.
  • “Fixed price, fixed deliverables, and fixed schedule” contracts, usually designed to reduce risk, actually significantly increase risk to successful project completion.
  • There are many different ways to create more “Agile” contracts, primarily enticing the parties involved to share in the cost of the embodied risk monetization found in the prices agreed to in traditional contracts.
  • Organizations should think true “partners” and not “vendors” when framing the collaborative environment consistent with an Agile mindset.

Target Audience

PMO, Executive, Upper Management, Product Owner, Delivery Team

schedule Submitted 3 years ago

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comment Comment on this Proposal
  • Tathagat Varma
    By Tathagat Varma  ~  3 years ago
    reply Reply

    Hi Howard - You have made a very interesting proposal, and just going through your presentation deck was educational, so I hope your proposal finds its way to the conference program. However, this seems like a better fit in "offshore - distribute - agile" or 'scaling agile adoption" track? would you want to look at that track?

    Also, as much as the proposal (at least from your past deck) is helpful in understanding the topic, I would like to understand a few more things:

    - often, the customer is coming to a vendor for a specific thing in mind, and most often, that happens to be delivery / execution / predictability for some of their pre-existing application or a system (as opposed to a New Product Development that might be distinguishable from an app maintenace in terms of the novelty of the idea and hence the commensurate risk profile that might neccesitate taking up an agile contract). In such cases of AMS (Application Maintenance Services), where the very reason for a work relationship to happen in the first place is based on those tenets, the focus, at least from a customer POV, is that I want execution reliability. So, the services organizaiton might not have too much choice in terms of 'dictating' the contracts. So, what advise could you offer to services organization to make it realistic for them, given that most interested audience in this part of the world might be from such services organizations and not from the 'customer' segment?

    - do you have data points from actual implementations that help the audience understand how effectives the theory and ideas work on real projects / engagements?

    -TV

     

    • Howard Deiner
      By Howard Deiner  ~  3 years ago
      reply Reply

      Hi Tathagat!

      I didn't realize that I had put it in the Beyond Agile track.  I think your suggestion for the Scaling track is more appropriate, so I just made that switch.  Thanks again!

       

      --  howard

    • Howard Deiner
      By Howard Deiner  ~  3 years ago
      reply Reply

      Hi Tathagat!

      As far as the track to take - I wasn't sure where this would fit, although I do see some reason to put this in the scaling track.  I would definately concur that would be a good place from a conference management perspective and be open to it.  Is it too late for me to make that change?

      Your point about Application Maintenance Services is well taken, and plays through the risk based thinking mindset that you and I are comfortable with.  In that context, one could imagine a world where, at one end, you were to repackage widgets and ship them on to end users.  That might involve so little risk of poor executation that the standard form of delivery (perhaps enhanced with performance service level agreements) would be quite appropriate.  In a Stacey model, that would be a simple system, and fixed everything contracts would be fine.  But when you reach very complicated or complex systems (again, Stacey), such as development of software systems, the risks of violating the Iron Triangle of Development are so great that as we monetize the risk in the price of the contract, I believe that it is better for both parties to share in the risk and potentially lower cost and raise (or at least fairly guarentee) an appropriate margin.  It's outcomes that should be contracted for, not the delivery components (which is why the fixed everything contracts can fail for the customer even if the project deliverables are delivered on time and on budget).  And, read on to the next paragraph about for a response to your issue regarding dictating contracts by the standard operating procedures of the client.

      To speak to actual implementations for a second.  As a consultant, I rarely get to see full cycles on topics like this.  For clients that have engaged me for advice on this topic, most are trying hard to do things along the lines of "pay as you go" and desire to use scrum point based models and such.  I really think that this is not the right way to go, and advise them to stop thinking like developers and start trying to think more as partners with their prospective customers, using the risk sharing modalities of engagement.  However, the biggest area of friction is on engaging the procurement departments from their prospective customers.  Even when both parties are in agreement as to how the contract should dictate the engagement, I've had huge issues trying to circumvent the standard operating procedures of the clients, who many times labor under only using the "fixed price. fixed date, and fixed deliverables" form of engagement.  Education of their clients and working through those procurement departments is a definate barrier to better contracts for all.

      Thanks for the thoughtful insights, and hope to speak to you soon!

      --  howard

      • Tathagat Varma
        By Tathagat Varma  ~  3 years ago
        reply Reply

        Howard - if you feel scaling agility is a better fit, it is not too late to make the switch. From the inputs on the proposal so far, we feel this might not be a strong fit for Beyong Agile as the issue of contracting is reasonably mainstream, even if a bit hairy one in implemeting, executing and enforcing.

        -TV

  • Prasad
    By Prasad  ~  3 years ago
    reply Reply

    I second Tathagat,  it will be a great topic to discuss undedr Scaling agile adoption.  Will you also be covering some sample Agile service contracts or master service agreements?

     

    • Howard Deiner
      By Howard Deiner  ~  3 years ago
      reply Reply

      Hi Prasad!

      I will not be giving away any specific legal advice or any templates for contracts.  The legal systems between the US and India are close, but I don't feel I know the ins and outs of India law enough to give you the answers you may be expecting.

      The talk is on concepts, so you can work with your legal and your's client's legal teams in forming the agreements you are looking for.  

      I guess that the connection to putting this in the Scaling Agile track is that we can utilize more talent to make our products.  It's just that I normally think of Scaling as techniques and mindsets we employ to organize ourselves, and not the financial arrangements that generally bind one company to another.  I'm happy to change tracks if that's what works, but I do want to set the scope correctly for this talk - not actionable templates, but the mindsets, background, and rationale for coming up with templates and contracts that you would then use. 

      --  howard

  • Pramod Sadalage
    By Pramod Sadalage  ~  3 years ago
    reply Reply

    Howard,
    Will you also talk about contracts with offshore teams?

    • Howard Deiner
      By Howard Deiner  ~  3 years ago
      reply Reply

      Hi Pramod!

      I don't speak speficially to that aspect.  What specifically are the issues that are of concern?  I'll bet that I speak to them somewhere in the presentation.  If I don't, perhaps I can include some thoughts on the subject.

      Thanks!


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