Read Part -1
Read Part – 2 here. Continuation ..
Trust and risk sharing are the two most basic aspects in contracting.
- With-out any trust between the contracting parties, there is no point of starting the project in the first place. The amount of trust in the relationship also influences the distribution of the legal conditions and the ethical principles in contracting, as well as how the risk is shared between the parties. Trust is also often seen as the most important success factor for the business. Yet, the conceptual definition of trust is difficult, even though in every-day sense trust is familiar to all. Everyone sees the meaning and role of trust diﬀerently and trust is always related to the context, thus making universal definition of trust difficult.
- In the business context, an important trust factor is competence, i.e. skills and technical capabilities, which are the necessary base for the whole professional relationship. What comes to accepting a certain level of risk, signs of goodwill, i.e. positive intentions towards the other and moral responsibility, are also needed. Positive intentions also show as proactive behavior and effective cooperation in the partnership.With these two factors trust can be defined as factors expectation of the other party’s competence and goodwill. Trust is crucial in long-term relationships. All circumstances cannot be precisely covered in a written contract and short-term inequities are inevitable, implying that trust towards the other party is needed in all contracting. This also means that if there is no trust at all, it is not reasonable to even try contracting, it is very unlikely that contracting without any trust would lead to a successful partnership. On the other hand, if the negotiating partners do trust each other, they will be able to save time and eﬀort in negotiating, agreeing and executing contracts. Trust can reduce transaction costs and improve the performance.
The traditional development where emphasis is on comprehensive advance planning and customer involvement during the implementation is minimal, gives the supplier free hand to execute the project using whatever working methods they prefer. Usually there will be no cooperation exceeding regular reporting of the project’s state to the customer is stated in the contract. Also the contract usually has only minimal involvement for the customer to e.g. participate in the requirements elicitation before the development starts and perform the acceptance tests after the project has been delivered. etc.
You cannot execute a project in an Agile with a traditional contract. “Customer collaboration over contract negotiation” does not mean that agile software development projects do not need contracts. Contracts are vitally important but the whole view to contracting is different, more proactive. Agile practitioners see that collaboration, rather than confrontation, produces better products and more successful, win-win business relationships. This also adds new challenges to contracting and makes usage of the old general contracting terms developed for waterfall development difficult.
If one needs benefits of agile, contract has to be around the agile manifesto and its principles. Few such critical aspects, briefed in this three part article. They are indeed context based.
Last, there must be regular governance around the contract to review if any of the contents need a change and that has to be negotiated, agreed and updated on a periodic basis.