Addressing the challenges in digital transformation contracting

Business-technology relationship is transforming the future and creating a more convenient user experience. Digital Transformation (DX) is leading a major reform that is affecting all business engagement models, it also triggers a unique ecosystem of joint venture attitudes and complex systems adoption.

This ecosystem triggered a major dependency on middle circle contractors, enriching the “man-in-the-middle” phenomenon and inserting new dimensions into the contracting mechanisms and processes. The service providers of digital transformation associated technologies such as social, mobile, analytics and cloud are playing a major role in the digital transformation journey. Those providers are required to act faithfully to their best interest whenever they are involved across the spectrum. Their responsibilities should also be cascaded to engaged integrators and subcontractors making the code of conduct more crucial to outline responsibilities, practices and data handling.

In such circumstances, traditional contracts are no longer capable of providing the desired value. Smart Agile “Opportunity Contracting” should be introduced to utilize best practices that will enable operational flexibility, manage various providers and orchestrate services. Such contracting is trying to adopt agility and smart features to correlate with stakeholders’ continuously evolving requirements and satisfy integration and isolation requirements where necessary.

Legal practitioners need to absorb few digital transformation features that are affecting the contracting processes. This includes, but not limited to, flexible scope, responsive change management, iterative processing, multi-layered structure and agile implementation.

Additionally, a more direct involvement of the major stakeholders is required to prioritize the associated activities and draft a working DX contract. Legal practitioners and business units need to be more engaged earlier in the journey to widen their scope and evaluate the emerging challenges in digital transformation, risks, values, practices and to get a broad view of business expectations.

As part of their due diligence throughout the contracting process, various stakeholders should also participate in the planning and design workshops, and participate in assessing the providers for sufficiency, maturity, reputation and ethics. The contracting team may include members from relevant departments such as strategy, procurement, technology, legal, quality and other concerned divisions.

As part of the digital transformation contracting there might be a need to manage some associated contracts and service agreements such as non-disclosure agreements (NDAs), service level agreements (SLAs) and software escrow agreements (SEAs).

The bottom line is that digital transformation contracting must achieve what seems to be impossible to support the ever-changing agile business requirements while protecting the rights and benefits of the client enterprise, the service providers and the middle circle contractors.

Some features of Digital Transformation opportunity contracts

Technically there exist plenty of terms and conditions that need to be associated and clarified in the contracts such as jurisdiction and ownership. We are more concerned with unique features that are directly related to digital transformation contracting.

Starting at the Provider Terms

Contracts for digital transformation services are generally implemented on the provider’s terms, thus the degree of negotiability pales in comparison with the contracting model in traditional services especially for well-established large providers who dictate their rules. Thus, if the client enterprise expects customization with a genuine negotiation of service terms, there should be special considerations related to the acquired solutions or components.

Flexible Scope

Digital Transformation contracts cannot define an exact project scope; however, the degree of scope specificity and change may vary from low to high based on the pricing scheme. Near one end of the spectrum are target-cost contracts, in which the overall project scope and details are identified at the start as best as possible while a change mechanism is associated. At the other end are progressive contracts, in which no necessary scope is defined beyond one iteration.

Multi-Layered Structure

Solution providers today encourage client enterprises to contract for few iterations to begin with, instead of signing a comprehensive contract up front. This allows the usage of a service or product on a trial basis to build confidence with the provider and avail a sort of risk coverage.

Consequently, the enterprise does not have to make up the entire vision. It can include changes throughout the journey, making incremental benefits. The termination clause in the contract may provide clients with an option to quit on predefined iteration notices.

Incremental Deliverables

Digital transformation methodologies promote incremental delivery of services and features; thus, DX contracts should focus on cooperation to manage integration and reinforce learning and responding toward creative discovery work. This is better than the over-planning of an illusory command-control behaviour which generates a sense that a fully defined system can be predictably ordered and delivered, just like pizza and its ingredients.

Traditional project contracts often include a detailed, prescriptive list of what should be delivered. Conversely, DX contracts need to avoid such specificity and rigidity, but to focus on artefacts that are valuable. Sometimes, it describes how the activities will be deployed within a time-boxing of fixed scope or even it considers also the development or acquisition in pre-defined cycles and milestones.

Responsive Change Management

The issue of change is largely inherently addressed within the overall philosophy of the agile approach to allow the re-prioritization of phases and adaptive iteration without a harsh change management process.

This area requires significant care in DX contracts to prevent subverting agility and to make the change disrupting, easy and frequent. This responsiveness changes the mindset of client enterprises and encourages them to look beyond the constraints of contracts toward the bigger picture.

The concept of a change for a free clause in contracts, allows client enterprises to change featured priorities for free if the total contract work remains the same. It also enables them to add new features if low priority items of equal work are removed from the contract.

However, this does not mean that all kinds of change management are dispensed within a contractual form. Pertinent variations may result due to changes in relationships between parties, such as when a party is being acquired by another entity or if a fundamental transformation in corporate direction occurs.

Creative Contract Termination

In a digital transformation, the concept of termination is linked with change control thus related services should be amenable to change. In contrast to conventional project thinking, early termination may be viewed as a positive, desirable event in an agile project. That is because such activity may not be a failure, it can be an early success or a change in direction. Such concepts are crucial points for legal professionals to grasp.

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