Flexible contracting in project business

Abstract

Purpose – The purpose of this paper is to increase the understanding of the main challenges of the contracting process and project contracts in the context of project business characterized by a high level of complexity and uncertainty. The authors argue that understanding contracting as a flexible process and as a business tool will contribute to creating more value in projects which are implemented in constantly changing circumstances or which require gradual and iterative development. Design/methodology/approach – This is a conceptual paper with illustrative examples from the software industry. Findings – A prevailing approach for both managing contracts and the contracting process focuses on careful planning and drafting of contracts that protect each party in the case of conflicts and disagreements. The underlying assumption is that all activities can be planned and documented in a formal contract. According to this approach, the contracting process is seen only as a bargaining negotiation and the project contract as a detailed agreement of the responsibilities and safeguarding clauses to protect one’s position in the event of conflicts and failures. However, in the context of project business characterized by complexity and uncertainty, there is a need for flexible project contracts. The authors suggest that there are two fundamentally different approaches to implementing flexibility in both the contracting process and the project contract: postponing the decision until there is adequate information for decision making or making decisions that allow flexible adaptation to changes during the project lifecycle. Practical implications – The authors suggest that organizations in project business should pay closer attention to how contracts are formed and how flexibility is introduced to projects. Organizations are encouraged to see contracts as a business tool, not as rigid documents which are taken into use in case something goes wrong. Originality/value – This paper contributes to the understanding of how to adapt the contracting process to overcome challenges related to uncertainty, especially during the early phases of the project lifecycle. The authors provide a novel perspective on contracting as a process that extends over the lifecycle of a project and on the project contract as an agreement between parties formed during the contracting process. This perspective includes formal contract documents as well as various other documents, oral communication, commitments, actions and incidents.

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