Agile Myths: If we are doing Agile procurement, we don't need a contract.

10 Mar 2023

Why contracts matter.

I’ve personally learnt how important contracts are the hard way.

A contract is a necessary and valuable document that becomes a parachute we lean on when things go wrong. You need this agreement, upfront, to protect you if things don’t work out the way we both anticipated they might.

When things are going well, and we’re collaborating and cocreating beautifully with others, we don’t need contracts. We’re in a fluid, progressive relationship that is all about creating value for one another and the markets we serve.

When things go South, that’s when we depend on a mutually agreed contract. That’s the law. That’s how business is conducted all around the world. So, contracts are incredibly important regardless of whether you are working with agile or traditional project management.

The Agile Manifesto.

In 2001, 17 brilliant software engineers came together to create what is known as the agile manifesto. A new style of working that focused on customer value and becoming adaptive and responsive in the face of disruption and adversity.

The primary agile values are:

  • Individuals and interactions over processes and tools.
  • Working software over comprehensive documentation.
  • Customer collaboration over contract negotiation.
  • Responding to change over following a plan.

In the agile manifesto, the architects of agile placed a higher importance and value on the elements on the left of the statement than they did on the elements to the right.

The problem often comes in when people assume that the architects placed NO value on the elements on the right. They assume that because we value customer collaboration, we don’t value contract negotiation.

That simply isn’t true.

These people are deeply experienced, respected professionals in their field and every one of them has contracts in place with their suppliers, their teams, and their customers. Every one of them know and understand the value of contracts, they simply emphasize the importance of working in collaboration with customers rather than following a plan to the letter and getting caught up in the tiny details of contract negotiation.

Agile isn’t unprofessional, it isn’t lazy, and it isn’t an alternative to great business practices that have served us for thousands of years.

Make sure you have good, solid contracts in place and make sure that you honour the spirit of those contracts when working with customers and suppliers because it does matter a great deal.

If you and a client have agreed on something, but 6 months into the contract you both recognize and understand that there is a better, more valuable way to do something, you should cocreate that better way and renegotiate the contract to include the work you are doing.

The spirit of the agile manifesto states that you shouldn’t ignore better opportunities, or look for better ways of working, simply because you are following a contract to the letter and because you won’t be paid unless you deliver every item in the contract.

That is the spirit of the value.

The idea that we collaborate with customers and are fluid and responsive to change.

Requirements for great business agility.

Some people imagine that agility is warm and fuzzy, and that it’s a place of creative chaos rather than an ordered, structured, and sound environment for product development.

That isn’t true.

  • Agility requires us to be organized around the creation and delivery of value.
  • Agility requires us to be disciplined.
  • Agility requires us to be focused.
  • Agility requires us to consistently make hard, valuable decisions.
  • Agility requires us to consistently and frequently deliver value to customers.

When we do these things consistently, we become a great organization that customers, suppliers, and partners love to work with.

The work that we do, is structured and agreed upon in a formal contract, and so it is incredibly important that we value and honour contracts in agile environments. They ensure that we stay focused on the most valuable work, in the most valuable way, at the most valuable time.

Lean Agile Procurement.

As a member of the lean agile procurement community, in the capacity of a trainer, a coach, and a consultant, I can confirm that we deeply value contracts and that contract negotiation with suppliers and partners is an incredibly important element for a successful organization.

Lean Agile Procurement simply encourages that we approach contract negotiation in a more collaborative way than contracts have traditionally been agreed or negotiated.

So, rather than the traditional adversarial contract, which has severe punishment clauses or tendering elements that focus on price rather than value, we instead negotiate contracts that focus on capturing and creating value for both parties.

A contract that empowers us to be truly agile and adapt and respond to circumstances in the most valuable way that we can, in partnership with our suppliers and partners. A contract that creates an environment for business agility to thrive in both organizations involved in the contract.

Ideally, we focus on a contract that rewards iterative and frequent delivery of products, features, and services.

  • We deliver bit by bit, in short production cycles known as sprints rather than having a client wait for months or years to receive a complete product.
  • The contract has mechanisms that enable us to adapt the backlog as necessary, or shift our focus in the event of disruption to mitigate the threat or take advantage of the opportunity for our clients.
  • Payment terms that enable that interactive delivery of products, features, and services.

Contracts that enable success.

One of the most common reasons why agile transformations fail is because the supplier contracts or customer contracts don’t enable business agility. They conform to traditional management and project management principles and are rigid, oppressive, and punitive in nature.

The lean agile procurement community is trying to change that through lean agile procurement training, coaching, and consulting.

If you are working in an iterative way, yet your supplier is working in a traditional project management way that delivers on milestones and deadlines rather than continuous delivery of value, you are going to create friction that impedes agility.

So, contracts are essential, but we believe in customer collaboration and cocreation of value to be more important than creating contracts written in blood. We believe that contracts should protect both parties but also enable them to succeed.

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