Zen and the art of drafting simple contracts

Simple contracts are quick and cheap to draft and negotiate. But if our contract is too simple then we risk project failure. How do we draft the simplest possible contract?

zen contracts

Yes, drafting contracts looks exactly like this. Photo: be creator (Some rights reserved).

1. Time is actually money (in this context at least)

Everything should be made as simple as possible, but not simpler

– Albert Einstein (attrib.)

The feedback that I received in relation to my article on “Agile” contracts was fantastic. And when I say fantastic, I mean half the comments were very positive, and the other half of the respondents thought that I had taken leave of my senses. Because the problem with “Agile” is that it is often used as an excuse not to project manage at all, or draft any form of contract at all.

So how do we draft the simplest possible contract that is also fit for purpose?

2. The larger and risker the project, the more project management and detailed contract structure we require

We need to project manage, including by agreeing up front what the customer is buying. But our contracts should be as short as possible, because the longer the contract, the longer it will take to negotiate. And in spite of what the poets say, time is in fact money - in this case at least.

In other words, simple contracts are relatively quick and cheap to draft and negotiate, but not all contracts should be short and simple. Because if our contract is too simple, then we risk project failure.

3. Use time and materials contracts for simple projects, and fixed price contracts for everything else

contracttypes

There are two contracting models:

4. Don’t over-engineer or under-engineer the contract

The top left and bottom right quadrants in our table above show what happens if we “over-engineer” our contracts by using time and materials contracts for large complex projects, or “under-engineer” our contracts by using fixed price contracts for projects that are low value and not complex (or risky).

We don’t:

5. Fixed price contract tools: modularising, catalogues, and Agile contracts

It takes a significant amount of time to negotiate a large, fixed price contract. Therefore, once we have chosen a fixed price contract, there are three tools that we can use to simplify the contract drafting process, and to make implementing the contract as simple as possible:

In summary, we can still keep our contracts simple. But it is a mistake to use simple time and materials contracts for large (or otherwise critical) projects.


This post originally appeared at iainmclaren.com. These opinions are mine. They are not necessarily those of my employer. Thanks to Alex Nathan for working with me to create the above matrix, and for reviewing drafts of this post.

2015-02-04-contracttypes.md (6.4 kB)