When it comes to contract options, many project managers are told that there is really only one choice; an arrangement of irresponsible time and materials or an arrangement with a fixed price. The result of this is there can be a big residual gap. Agile Project Management pays considerable attention to the execution of the project and team values whilst giving little consideration to how projects are actually initiated.

When it comes to the building of projects, there are a number of techniques and considerations to think about. Whilst these may be covered in good project manager courses, it can be a complex issue that benefits from being looked at again.

Flexible Documentation

Contracts are a collection of several different items which can be broken down into both stable elements and those elements that are more likely to change.

Stable items on a contract are defined as:

• Parties involved – both customer and prime contractors
• Terms and conditions
• Penalties that may be levied for late payments

Those items that are less stable may be the types of services that a buyer might need from a supplier. In the first instance, this may, for example, take the form of a telecommunications product. However, as processes progress and there is a move towards development, it will be necessary to include some form of product support. The terms and the parties involved, however, will not have changed.

There may be other changes that will occur as a result of this additional, broader scope. When it comes to product development for telecoms for example, there may be more costs associated with the necessary support services, and this would therefore require a different type of fee structure and also different criteria for customer satisfaction.

The least stable items you should consider for your contracts are the detailed scope. Over the course of the project, what you thought you wanted in the first instance may change dramatically. This means that once that changes so too might the support that you have in place for the original idea. Thus, a detailed scope change for one or more of the elements associated with the project is needed.

Structure of Flexible Contracts

Taking all of this into consideration, it is useful to havve the contracting instruments show the varyigng levels of stability in the following manner:

• Master Contracting Agreement (MCA) – This element should contain those items that are most stable; the parties involved and terms and conditions. An example of this would be the Indefinite Duration Indefinite Quantity (IDIQ) contract. This type is most seen in government contracts.
• Schedule of Services – This should contain a list of those services and products that are fairly stable and being offered under the MCA. When a change in the broad scope of the engagement is made a new version of this schedule should be created. An example of this would be the multiple Task Orders (TO) as issued under an IDIQ agreement.
• Statement of Work (SOW) – This element describes those detailed scope items that will be addressed in a given service. This is a short document that describes a specific focus to must be achieved within a specific timeframe. These documents should be generated as one or two-page templates that are pre-approved or from a formal email.

It is important to make your contracts in a way that shows the flexibility that you need in order to conduct business.

Options for Contracts

Training for project managers tells you that when it comes to cost, you only have two choices, fixed price or time and materials. However, this isn’t always the only option and as a result of much consideration Cost Plus Award Fee is the solution that has been found. This is something that can be manipulated. There are also some additional options:

• Graduated fixed price – when you deliver on time, the hours worked are paid at standard rate, delivery early and you are paid for fewer hours but at an increased rate. When this happens the customer is happy, he pays less but gets completed work sooner. The contractor is also happy because his margin is improved. Unfortunately, when you deliver late the pay is lower for more hours and in this scenario nobody is happy. As more days go by everyone loses money, although this is at a gradual and manageable pace.
• Early cancellation clause – most projects have an iterative incremental delivery cycle built in; this is sometimes referred to as Agile Delivery. The advantages of this are early feedback, time-to-market and quality refinement. There is also the option to cancel the contract early whilst it still has residual value and pay a cancelation fee.

Work Packages with Fixed Prices

A traditional SOW has a narrow fixed scope with a single price. When this approach is applied to contracts that have a fixed price arrangement, control over the cost remains firmly with the customer and the risk to the contractor is a localised one. It is limited only to any work package that is still in progress.

Conclusion

One further thing that it is really important to consider is the propensity to place every possible issue that may occur in the future into a single contract. Whilst it is true that a contract may ensure that there is accountability present for any of the human elements that are involved, such as a risk mitigation technique, even in cases where your agreement is several hundred pages long you still need to include a complete risk management solution.

It is also important to remember that you simply cannot put everything in your document, and you really shouldn’t try to instead all of the smaller details should be left to your project management team. They might want to keep a risk registry to accommodate this or have frequent discussions with the other members of the project team.

Remember the following:

• Contracts come about because of relationships
• Ensure that there is flexibility within your documents
• There are always more options available to you than you realise
• The contract is not the project manager