“Conventional wisdom holds that specifying and controlling scope in a contract is necessary to protect an organization from self-serving behavior on the part of the other party. However, the effect of this protection is a sub-optimized value stream… The bottom line? Organizations that use outsourcing as a way to save money will save more money overall if they collaborate with vendors by using some form of optional scope contract.”
— Lean Software Development, by Mary Poppendieck and Tom Poppendieck

Collaboration, under the framework of a flexible contract, delivers the best outcomes for both customer and supplier.  This concept is described in the book Lean Software Development.  The book quotes a powerful example from the automotive industry –Toyota pioneered a new level of close collaboration and went on to great commercial success.

Toyota, as a major industry player, was pivotal in reshaping the culture of the auto industry.  Who could play the same role in IT?  Who is a significant buyer of IT services, with the market influence to lead the way? Government departments.

Why?

Why should we even imagine that the public sector, with its reputation for caution, should lead the way?  Because the benefits are too good to ignore…

• It will save money.  As explained in Lean Software Development, if an organisation (such as a government department) wants to save money through outsourcing, they’ll make the biggest savings if they collaborate with suppliers using flexible contracts.
• It will boost the local IT industry.  Trust and flexibility don’t just help the purchaser, they also benefit suppliers.  Which government doesn’t want to boost its local IT industry?

Will This Ever Happen?

Realistically, I won’t hold my breath waiting for government departments to start insisting on flexible contracts.  However, wouldn’t it be great if they did!

Where I live, in New Zealand, we pride ourselves on innovation.  What a great opportunity for our public sector to express our innovative spirit, save money, and boost our knowledge economy!

Update 8 May 2005: Even more important than flexibility in contracts is the need to stop awarding contracts on price.  This outdated practice is causing grief in our construction industry, and the same problems exist in IT.  I’ve written about the issues and solutions here.  Again, government should lead the way.