Short timeframes, rapidly changing technologies and complex business needs are facts of life in business these days. In order to cope with this corporate dynamism, the structure and execution of business contracts must be reviewed.

A common contributing factor in unsuccessful projects is the tendency for the contract structure to trigger adversarial behaviour between the contractor and the client.

Gains for Both Parties

Over 35 years, Dialog has entered into many different forms of contracts with our clients. In the last few years, Dialog has found that the Relationship Contracting approach has yielded significant gains for both parties.

Dialog has entered into such arrangements with several clients and in all cases the projects were extremely successful. The inevitable unplanned requirements and complications which surfaced were well managed within the Relationship Contract arrangements.

History

Relationship Contracting has been used in the civil engineering construction industry in Europe since the early 1990s and in Australia since the 2000s where it is being strongly promoted by the Australian Constructors Association. Dialog saw the success of these contracts and adapted them for use in the IT arena.

Historically the form of IT contracts used by large corporations and government departments has often been mandated by their respective purchasing policies. These fall into the two main categories:

• Fixed Price
• Time and Materials

Both types do work well if the project is completed as planned. Both have shortcomings if changes to the project plan are required during the project. The most significant shortcoming is the tendency for both parties to fall back on the letter of the contract and behave as adversaries. The Relations Contracting model can eliminate this tendency.

Managing Risks

Of particular interest to Dialog is the management of risk for our clients. Risk Management, in many existing contracts, often means the transfer of as much risk as possible to the other party.

Relationship Contracting uses a “risk embrace” approach. The party in the best position to manage any given risk assumes responsibility for it. Connected to risk is the Share Gain / Pain concept. Incentives to success are provided to all parties of the contract – either all parties win or all parties lose.

Benefits

Relationship Contracting can deliver:

• Increased flexibility to respond to changing requirements
• Certainty of project timeframes
• Better management of risk
• Enhanced business relationship
• Common alignment of project goals

In these rapidly changing times, contract conditions are required to allow for the achievement of business outcomes using innovation and the latest technology. Dialog is able to work with clients on contract types that provide incentives to both parties without the risk of becoming adversaries.