Many people (and including, it should be said, a good many lawyers) see outsourcing contracts as an impenetrable thicket of legal jargon: a doorstop of arcane clauses, technical descriptions and countless other schedules.

Like all contracts, outsourcing agreements perform essentially two functions: describing what’s going to happen during the course of the transaction (e.g. what the supplier will deliver and for how much), and what will happen if something goes wrong.

Whilst it may sound obvious, it’s important to appreciate the difference between the contract and all the other project documents such as the customer’s business case and the supplier’s sales material. The only difference is this: contracts can be enforced.

If one could guarantee that an outsourcing relationship would always be harmonious there would be no need for a contract. The supplier would deliver exactly what the customer had asked for, and the customer would find that what it had asked for was exactly what it wanted. Naturally, the customer would also recognise the supplier’s value by paying what had been agreed.

In this scenario, non-binding documents would be fine.

Back in prosaic reality, this isn’t how things happen. Suppliers do sometimes over-promise and under-deliver. Customers do change their minds or discover that what they’d asked for doesn’t help as much as they’d hoped. And the completely unexpected does supervene.

In each of these scenarios lie the seeds of a dispute. When you’re in dispute you need something you can enforce.

And this leads on to the fundamental issue which customers in particular are prone to overlook.

One often hears the line, “Once you sign the contract you can put it in a drawer and get on with the project” but in practice this is never good for the relationship. Why? Because the contract is not just a description of what the parties agreed on day one. It should reflect the state of agreement throughout the life of the relationship.

To put it another way, if you ignore the contract you are likely to move away from the agreed position and the contract will become out of date. If the contract becomes out of date it gets correspondingly difficult to apply. For example if the parties agreed that the customer would do A so that the supplier could do B, but as time moves on the customer is doing C and the supplier D, then that may be the right answer, but it’s not one the contract can enforce. The change must be put into the agreement.

In a future post I’ll be looking at change management and its importance to the outsourcing relationship.