Contractual Sledgehammers and Management Nuts

There is a fundamental problem with ICT contracts in the public sector.  It arises from the persistent use of contractual sledgehammers to crack management nuts.

 

The problem, simply described, is this.  When things go wrong with IT projects in the public sector, lessons are identified.  But, they aren’t learned consistently.  Contractual lessons are learned well, since one of the things that the public sector does well is create templates and writing guidance.  However, management lessons are not learned so well.  The public sector is not too good at firing or demoting people if they don’t deliver great results (or rewarding those that do deliver with rapid promotion and additional responsibilities, or cutting out unnecessary processes and procedures, or… well, you get the idea).

 

So, instead of solving a management problem by changing management, there is a tendency to deal with it by changing the contract. 

-          Got problems with risk management?  Why not make it the supplier’s contractual responsibility to notify you of potential risks and create mitigating actions? 

-          Can’t keep control over user requirements?  Why not make it the supplier’s contractual responsibility to manage and document your change control process?

-          Staff don’t commit to delivering on their obligations and miss their own deadlines?  Why not make it the supplier’s contractual responsibility to identify and manage all dependencies?

 

In each case, the problem is one of management.  But the public sector keeps on trying to solve it using the contract.  The number, size and complexity of model ICT contracts has grown like topsy over the last twenty years.  However, all of these changes have made no difference to the number of public sector contracts that are successful. 

 

As any builder will tell you, you need to use the right tool for the job.  Otherwise, it will cost you more and it might not work either.

 

Sound familiar?

Does Agile Development need a different contractual paradigm?

I've been involved in some discussions with a group of agile development experts (aka the Agile Development Network) about how they can get involved in more public sector contracts.  What's clear from the discussion is that there is a gulf of understanding between software development specialists and procurement people that needs to be addressed urgently.

The argument appears to polarise around two views:
1. The very nature of our work is collaborative and about understanding the requirement as we develop the solution
vs.

2. The very nature of our work is to ensure that we don't spend money unless or until we know what we want; and that we hold our suppliers to account for their performance.

In between there's a lot of confusion, ignorance and suspicion.  I think that there needs to be a new way of contracting for agile development to bridge the gap.

The ICT Project Moratorium, and the Law of Unintended Consequences

As part of its drive to find £6Bn in savings in this financial year, the Cabinet Office has introduced a moratorium on all new ICT contracts above £1M in value, and initiated a review of all ongoing projects to identify opportunities to cut, rescope or reduce the cost.  It has also stated its intention to renegotiate existing large ICT contracts to reduce costs, and extend the involvement of smaller companies in the provision of ICT services.  Between them, the top 9 ICT providers to the public sector received nearly 60% of all public sector IT spend in 2006.  Tens of thousands of small and medium sized enterprises (SMEs) pick up the remainder.

Sounds great.  As a very small enterprise, I should be rubbing my hands with glee at the new opportunities that will be opened up as a result.

I'm not, though.  The law of unintended consequence applies to pretty much every government initiative, and this one is no exception.  The main casualties of this process will be small to medium sized ICT providers, and the main beneficiaries will be larger firms that are its target.  Here's why.

For the next 3 to 9 months, pretty much no new ICT contracts will be signed (beyond those where the contract is required to support a critical public service).  Across the board, public sector ICT suppliers are already seeing their sales pipelines collapse, and cashflow reducing.  At the same time, public sector customers are knocking on the door demanding price cuts of 30% as a starting point for negotiation, on the (usually mistaken) assumption that they have been ripped off for years, and now its payback time.  Tesco's treatment of its suppliers will be nothing compared to this.

For smaller ICT providers, this combination has the potential to be fatal.  A major cashflow hit is difficult to bear if your turnover is modest, and they lack the negotiating power to resist arbitrary price cuts from their biggest customer. 

Larger providers are in a much better position, even if it doesn't feel like it.  Their contracts are usually long term, with high termination costs, and they will generally have the financial strength  to survive a short cashflow problem.  They also tend to be delivering the most critical services - the ones that, for all the bluster, public sector customers simply cannot afford to put at risk.

So, when the negotiations start, it will be the smaller firms that are forced to accept blanket price cuts, reductions in scope and long delays before new orders are placed.  The main effect of the moratorium will be to drive SME's away from the public sector, or out of business altogether. 

Larger providers will sit out the storm, knowing that this time next year many of their smaller, more nimble competitors will no longer be there.