IT Contracts – part 3
In the article concerning different models of contracts, I have presented those created for agile projects. Many companies have their own templates, which more or less reflect agile work characteristics. We can also make use of ready-made solutions presented in this article.
SSA stands for ‚The Norwegian Governmental Standard Agreement’ and includes different types of contracts. ‘The Agency for Public Management and eGovernment (DIFI)’, creator of SSA-S, where S stands for ‘smidig’ (‘agile’ in Norwegian), acts here as a promoter, responsible for the development of those contracts. Their definition, still under development, focuses on facilitating the use of agile methodologies in governmental project to both clients and suppliers.
SSA-S adopted certain mechanisms from Scrum, such as product backlog or sprint backlog. In addition, it is based on short iterations, each delivering business value. Client’s responsibility is to approve both backlogs. What is more, the contract takes into consideration the following issues:
- Defining and distributing risk
- Proactive functioning to avoid conflicts
- Solving conflicts, if they occur
The T5 Agreement
The contract created in response to the needs and presented during construction of Terminal 5 at Heathrow Airport. Since the very beginning, BAA, responsible for the project, was aware of the fact that under no circumstances must they miss the deadline or overrun costs. They decided to profoundly analyse similar undertakings. As a result, they arrived to the came to an important conclusion, namely, it was the contracting process that was the ground for numerous failures of analysed projects. The risk in contracts was almost entirely transferred to suppliers, who, as a result, charged higher fees. However, in case of problems, responsibility was again on the client’s side, despite previous arrangements. In that case, BAA decided to handle risk management on its own.
Consequently, they have created the T5 Agreement, a legally binding document replacing existing contracts and changing rules of a game in some way. At the same time, BAA was managing the risk and was responsible for creating joint teams ‘client-supplier’, which worked together on risk reduction. The project divided into over 150 subprojects had a designated suppliers team basing on Target Cost form and time and materials pricing. In case of adjustments or reparations, suppliers provided repair works, receiving remuneration, according to the previously negotiated agreement. In the event of exceeding the target cost, they continued financing the project from the risk budget.
Type of a contract drawn up by Norwegian Computer Society. Interesting is the fact that first drafts of this contracts were written with the help of Norwegian governmental administration representatives as well as leading Norwegian companies and universities. The template of this contract can be purchased for several hundret Euros. Based on PS 2000 description, we can distinguish the following features of this contract:
- Increasing efficiency of software development
- Using a set of ‚good practices’ of software development
- Uncertainty management tools indispensable in a project
- Iterative model of a software development
- Close cooperation of a client and a supplier
- Means of achieving project goals and satisfying customer’s needs are within the competence of suppliers
- Defining benefits and sanctions depending on a fixed budget
- Procedures resolving conflicts with the use of mediation
I must admit that I was intrigued by the last feature, which probably should decrease potential costs in case of a major conflict. Instead of going to court, wasting money, we sit down at the table and a professional mediator helps in reaching an agreement.
Remaining elements are nothing more than rules, sanctioned in a contract of Agile methodologies, tailored to Scrum. This contract assumes that both sides are willing to cooperate and trust each other. It also states the relations of both sides, instead of defining the final solution, as it is in case of Fixed Price contracts.
In short, advantages of this contract:
- Enables working on the basis of Agile team
- Promotes mutual trust
- Includes mechanisms of a change management
- Includes elements typical for Target Cost contracts:
- Contains target cost as well as variances of plus or minus
- Reduces the risk of acting to the detriment of a project by both, client and supplier
Disadvantages of the contract:
- Each iteration is a separate contract:
- Similar to the form of fixed price for every iteration
- Works effectively for small iterations
I would like to add that in Norway, those contracts work perfectly with delivering not small projects but major public procurements, and the very contract was created for this kind of projects.
Original DSDM contract template can be downloaded from this location. This contract was created by DSDM Consortium and it should perfectly work with DSDM Atern methodology. This contract should be useful for clients decdiding to work according to DSDM rules. Supplier might work in Scrum and then both sides should be able to quick adaptation of this contract.
The book ‘Practices for Scaling Lean & Agile Development’ presents, in details, types of contracts, at the same time focusing on their legal side; how to convince lawyers to include certain settlements, or how to practically approach provisions in contracts. On the other hand, we can have a better understanding of the reason why most contracts are still very close to fixed price.
Moreover, a publication entitled ‘Flexible Contracts’ is in preparation. You can download a template of the contract from the authors’ website (registration is required).
Another example of a ready-made contract might be http://www.coactivate.org/projects/agile-contracts/sample-fixed-price-agile-contract.