Contracts for Complex Products – Flexible Contracts
Why do we need Contracts?
Are they helpful?
Which contracts are suitable for complex domain?
Contracts are required to have better collaboration between customers and suppliers. On traditional contracts, focus is on activities carried out by supplier and delivery of features but focus should be on real value which should bring more business.
If your contract impedes your collaboration, contracts should be changed. Flexible contracts really help in solving traditional approach where focus is on the outcome and business objective is the key.
In traditional contracts, there are long discussions which go quiet back and forth with a lengthy process and adds Cost of delay. Flexible contracts really help in solving traditional approach by delivering value quickly.
They are also known as Minimal Viable Contracts which has very less information in-built but different modules can be added to current conditions of the product/project/services. A flexible contract blends TnM (time and material) with outcome delivered. It really helps supplier to reach outcome as quickly as possible and also ensures customer on their business needs.
Flexible contracts do not provide any minute details on how to achieve it and it honours the term of contract as well. Contracts are really generic, not specific to any industry, domain or sector. It helps in creating shared goals between customer and supplier.
Flexible contracts are specifically build for complex products. By complex products, I mean, there is no clarity on requirements and solution to meet customer needs and changes are required throughout the contractual term. A contract operates on module delivery by operating at two levels:
- Main Agreement
- SoTo – Statement of target Outcomes
A main agreement has schedules with frameworks which has no contractual commitment for specific deliverables. SoTo is similar to the statement of work like traditional contract but here we deliver measurable outcomes. Customer and Supplier focus on different target outcomes under each SoTo.
Initially, SoTo can be used as exploratory mechanism where they should be considered as options not required ones. All SoTo’s are limited to shorter time period with clear outcome deliverables. It gives enough privilege to customers to not to commission future SoTo if they are not happy with outcome of SoTo in execution.
Supplier should also consider each SoTo as learning to inspect and adapt. One can use Mobius canvas for flexible contractual model.