What is a Flexible Contract?
The Flexible Contract is an outcome-based contract designed to help you deliver value rapidly. It is designed as a 'Minimum Viable Contract'; meaning it has the least amount of information in it, but modules can be added to customize it to your current conditions.
The Flexible Contract ties part of the compensation to outcomes delivered within a framework structure that allows adaptation to changing conditions. Many suppliers will be compensated by a time and materials rate blended with outcomes delivered. This incentivises the supplier to reach the outcomes as quickly as possible and gives the customer assurance that their business needs are being met.
The Flexible Contract does not state what will be achieved in micro details nor how it will be achieved. The methodology is irrelevant, and the Flexible Contract is neither industry nor sector specific. The Flexible Contract is easy to understand, requires less administrative cost to create and manage, and creates shared goals between the customer and supplier.
The Flexible Contract is designed to work with complex projects, products and services. The term ‘complex’ is used to refer to a situation where the solution is neither obvious nor predictable at the outset and where changes are requested throughout the term. If the customer knows what their needs are before the project starts and the environment is fairly stable, it may be that a traditional contract would be applicable. This would require the requirements to be known and not change, and the technical, regulatory and competitive landscape not change as well. In our experience, and based on the amount of changes requests we see with traditional contracts, these projects are extremely rare.
Structure of the contract
The Flexible Contract enables modular delivery by operating at two levels:
The first level is the Main Agreement which includes the Schedules. The Main Agreement puts in place what is known as a framework arrangement. There is no contractual commitment for specific deliverables under the Main Agreement. The Main Agreement also sets forth the direction and constraints of the working relationship, as well as all of the legal provisions such as warranties, etc which apply to the SOTO.
The second level comprises the Statements of Target Outcomes (SOTOs). These are similar to a statement of work in a traditional contract, only you deliver measurable outcomes instead of ‘work’ in the form of outputs or activites. These are entered into by the parties under the umbrella of the Main Agreement.
The customer and supplier can focus on different target outcomes under each SOTO as agreed upon by the customer and supplier. This in turn means that the parties can build upon the knowledge gained over the course of the course of the project to date.
The SOTOs limit investment to shorter time periods and with clear outcome deliverables so the customer is not significantly indebted to the supplier before valuable software is delivered. The Flexible Contract therefore, does not need to contain contractual mechanisms of redress, such as liquidated damages or step-in rights. If the customer is not satisfied with the results, they can simply choose not to commission any further SOTOs – a much more cost-effective approach than litigating or enforcing a contractual mechanism.
Comparison to a traditional contract
The Flexible Contract is similar to traditional contracts in that it addresses the following areas:
· The substance, or the subject matter, of the contract – why the customer has engaged the supplier;
· Fees and payment arrangements;
· Remedies - e.g. limit of liability, warranties, indemnities, step in rights;
· Intellectual property, data protection and confidentiality
· Term and termination;
· Miscellaneous provisions - e.g. subcontracting, dispute resolution, governing law.
The area in which the Flexible Contract differs significantly from traditional contracts is the substance, or the subject matter, of the contract. Other areas have been customised for the subject matter of the Flexible Contract, but they are largely as would be expected in any contract of this nature.