Contracting for success or failure?

Gareth Morgan has written an interesting article (a follow up to this one) discussing the “systemic failure to be more successful in using IT to capture material productivity improvements”:

By focusing on the technical weakness inherent within the job specification that the client has signed off on, and forcing variation to contracts as they work their way through, even though the supplier knew at the start that they could not meet timeframes and delivery targets, the multinational easily arm-wrestles the hapless customer to fund excess profitability. These projects follow the same pattern over and over again, they become five to six times over budget – a $20 million project can turn into a $120 million one. The supplier knows that walking away is not an option for these clients.

While Gareth addresses a broader issue, many of the problems he discusses arise from poor contacting. There are a number of problems endemic in IT project contracting:

  • The project is simply contracted far too large.
  • The contract relies on the often faulty assumption of Big Design Up Front.
  • The contract is prepared as if it were a construction contract.
  • The contract is only seen as “safe” if it nails down every last detail, and only allows changes through variations, which as Gareth says usually produce poor results.
  • The contract imposes completely unrealistic and ineffective “project management and control procedures”, that are either never used or are simply “caught up” on from time-to-time.
  • The contract is usually in conflict with the “agile intention” of the project (whether or not an agile methodology is actually going to be adopted).

I have written about some of these problems (and overcoming them) here: Contracting in an agile world (part 2 here). The solutions are not complicated, but when contracting is seen as a contest (which party can tie the other up the most?) the result can be a contract that’s more useful when the project actually fails, than facilitating the project’s success.

When the cost of IT failure in New Zealand is $5.4 billion a year, it pays to get the comparatively small matter of contracting right.

One thought on “Contracting for success or failure?

  1. If I may chime in a bit. For projects of this magnitude why would a company hire a committee or a team of I.T auditors to look into each and every possible scenario. When contracts go bad there are usually 2 reasons. Lack of proper business analysis and lack of technology understanding on part of the client.

Comments are closed.