Traditional contracting focused on risk mitigation, allocation of liability, avoidance of conflicts, and significant financial consequences in the event of non-performance or a breach. Although this approach to contracting persists today, there is a growing desire for companies to incorporate a more relaxed mindset when it comes to negotiating and drafting contracts. The agile contract is one that prioritizes flexibility and outcomes over stringent adherence to doing things a certain way and demanding complete obedience. With constant changes in technology and the ease of conducting affairs across state and national borders, companies will have to adapt to new ways of thinking or risk losing business to a company that is able and willing to do so. Here are four steps to take to create agile contracts:
Identify Priorities and Focus on Outcomes
An agile contract is tailored to meet specific objectives but maintains a fair amount of flexibility to allow for unavoidable changes in circumstances. The key to ensuring that a contract retains this agility is by identifying mutual goals and focusing on crafting an agreement that clearly identifies the priorities of the contracting relationship. Rather than focus on all of the scenarios the parties wish to avoid and incorporating terse language in the contract to that effect, it is best to emphasize results and the overall outcome. This gives some room for one or both parties to make any necessary adjustments without facing the possibility of a breach, an essential facet of any agile contract.
The only way that contracting partners can engage in an agile manner is by knowing what the other side expects. Honest feedback must be exchanged, so that each side can adapt accordingly. This feedback loop must be immediately initiated upon commencement of the contract negotiations, must continue during the contract drafting phase, and has to remain an integral aspect of the contracting relationship throughout the management of the agreement. Failing to offer feedback and communication lapses in general are often the downfall of contracts, whether they are more traditional in nature or more modern and agile. But, agility is only attainable if both sides are comfortable making suggestions and are willing to accept constructive criticism for the sake of the deal.
There are often two or more sides to a contracting arrangement, but this does not mean that the separate parties must act in an entirely distinct manner. In fact, agile contracts are best realized through collaboration. Mutual respect and cooperation for the good of all is a cornerstone of the movement for agile contracts. For so many years, contracting relations often soured, leading to conflict, costly disputes, and sometimes long and drawn out battles in court. Fortunately, there is a shifting business mindset that competition does not necessarily equate to being combative. With contracting, in particular, it simply does not make sense to approach the relationship in an adversarial fashion.
Prioritizing transparency to preserve an agile contract relates to the collaboration and feedback pieces of the equation. One of the reasons that contracts can be fraught with conflict is because one party tries to sweep an existing or potential issue under the rug. More often than not, this allows the problem to fester to a point where it becomes harder and harder to contain. However, with the agile approach, the whole point is to make modifications as needed, and thus being transparent at the time that things begin to unfold will prove critical to making the requisite changes.