(S3) EO28 Richard Stephens on the Challenges of Creating Agile Contracts

Bio

A technology lawyer of some 40 years' experience, Richard has seen the IT industry from all sides - as an in-house lawyer with two substantial UK based systems houses, a lawyer in City of London practice and now as the head of his own practice offering legal services to IT companies large and small as well as acting as mediator and arbitrator in IT disputes. Over the course of his career, Richard has been involved in some of the largest IT litigation and transactions and now gets involved in particular with Cloud contracting. When Richard set up his own private practice, the Chambers Guide to the Legal Profession described him as a "leader in his field" and as "good news on the most complex of matters". Richard is a well known IT lawyer, having served two years as Chair of the Society for Computers & Law and is currently serving as Chair of the Legal Affairs Group at techUK. He has been a regular speaker at conferences both in the UK and internationally and has been providing training for over ten years: his annual lecture on Contract Law Developments attracts hundreds of attendees every year. More recently, he has ventured into writing with the publication of "Stephens on Contractual Indemnities" published by Law Brief Publishing.

Social media/ website(s):

· LinkedIn: Richard Stephens on LinkedIn

· Richard's Website: https://www.the-lors.co.uk

Books/References

· 'Stephens on Contractual Indemnities' by Richard Stephens – Law Brief Publishing

Interview Highlights

07:20 Don't leave any slippery bananas

09:15 Kicking the can down the street

15:20 Peppercorn rent

16:55 Blue v Ashley case

21:31 DSDM

22:40 Agile contracts

32:20 Atos Origin v De Beers

37:15 Hogjaard v EON

Episode Transcript

Ula Ojiaku

Hello and welcome to the Agile Innovation Leaders podcast. I'm Ula Ojiaku. On this podcast I speak with world-class leaders and doers about themselves and a variety of topics spanning Agile, Lean Innovation, Business, Leadership and much more – with actionable takeaways for you the listener.

So, Richard, thank you so much for joining us on the Agile Innovation Leaders' podcast.

Richard Stephens

Pleasure to be here.

Ula Ojiaku

Fantastic. Now, as I start with all my guests, we want to know who Richard Stephens is. So, can you tell us about yourself?

Richard Stephens

Well, it depends what you want to know Ula. I'm a solicitor, and it's not terribly exciting as professions go. So, I spend a lot of time reading long documents, commenting on them, marking them up, doing contracts. It's probably everyone's worst nightmare when it comes to a profession really, I suppose, I don't know.

Ula Ojiaku

Well, I like the way you've just summarised your profession as reading long documents and making comments. I'm wondering if you ever had long debates over phrases and words in a document?

Richard Stephens

Yes, that's what the job consists of. And when you get into negotiating big contracts, and over my career, I've done, I've been involved in huge global outsourcing of huge cloud contracts, huge this, huge that, huge development implementation contracts. The job consists of arguing about words and trying to get it right for your client to be honest, you don't want to leave any slippery bananas in there which are going to trip them up later on.

Ula Ojiaku

So that phrase slippery bananas, we'll get back to it. But in the meantime, how did you end up in a career in law, because you said, the way you've described it, you said it's not the most exciting thing. So, there must have been something that still drew you to this, "non-exciting path"?

Richard Stephens

Well, I don't know, really, you just, I don't know, why do you do anything when you're young, and you decide to become, you know, typically, young little boys will say, well, I want to be a train driver or whatever. And you just, as you grow up, you just become gravitated to do something, and there are a lot of us in our school who said they wanted to be lawyers, others said they wanted to be consultants or some wanted to be accountants, but you have to understand that I worked in a time when IT didn't really exist. So, I don't think there was anybody who wanted to go into technology, for example, because I was, you know, at school in the 70s. So that was very much an arcane shut away job where people would wear white coats and go into air conditioned, filtered air rooms to feed mainframe monsters. But of course, that sort of thing, we knew nothing about.

I don't know, I don't know why I went into being a lawyer. I mean, I could have run away to the circus, I suppose, but I lacked the courage to do it, I suppose - too boring and unadventurous is typical lawyer you see.

Ula Ojiaku

Okay, okay. Well, that's an interesting, will I say, narrative of your career to date. So, do you have any thing you would have done differently, knowing what you now know?

Richard Stephens

I think I would have run away to the circus, Ula.

Ula Ojiaku

Okay, well, that's an interesting response, Richard. Well, thanks for sharing your career story to date.

And so, for someone who is, for example, listening, and that's considering a career in law that you know, no matter what stage in life they're at, what would be your advice?

Richard Stephens

Don't put your daughter on the stage, Mrs. Robinson, I think is probably what I would say.

You know, they're all different types of lawyers. And you can go through lawyers who do criminal work, for example, and I think some lawyers get a good deal of pleasure out of doing that sort of thing. I don't think the criminal lawyers make a huge amount of money out of it. Or a lot of people do very harrowing areas of law like family domestic law and they're dealing with battered people of, frankly, these days, both sexes and horrible emotional scars and, you know, battles over, but I, you know, I went to, did some of my CPD and I went to a talk given by a probate mediator. Now you think that probate was a nice sedate area of the law, but that's the most, he said, is the most vicious, dispute ridden thing, because he said all families will have secrets and they will harbour them. And he said, what will happen is that, you know, Aunt Maud dies, and she has some valuable art collection or something like that, and then all these little, all these little disputes and resentments that you had against your elder brother for 30 years suddenly all bubble to the surface. And he said, it all comes out as a horrible, vicious fight. People are going into Aunt Maud's house and stealing her property while she's dead. And they're arguing over who gets the fine china and who gets this and who gets that. He said, one of the horrible things is that you, know, when he does the settlement between the brothers or whoever it may be, and one of the clauses he's very often asked to put in is that such and such brother, should not ever again seek to contact him by phone, email, writing, or anything. So, you get that sort of thing as well. So, but you know why it is I would become a commercial lawyer, I say it's not that boring and actually, when you get in a deal, you get the excitement of trying to work the deal together, put it all together, bring it all together for the day of signature, I say there is a pressure, a dynamic, and every team has its own dynamic, and you're working towards getting something done. A bit like looking at your agile principles as well, I suppose. You know, you're trying to get it done. Although it's not done in incremental delivery, it's all done in one big drop at the end on the day of signature, of course.

Ula Ojiaku

Now, that's an interesting story about, you know, different kinds of law, probate and going kindly back to commercial law, which you practice, if I'm correct in the understanding.

Richard Stephens

That's right. I mean, I work for myself, when I say I do the big contracts, and I certainly do that, I work for SMEs as well, one of the things I also do is, I work as a mediator and an arbitrator in the IT sector. So, I'm there either helping people resolve disputes, or as an arbitrator, I'm actually resolving disputes, issuing binding awards. But I also provide some coaching in commercial law subjects as well. So, I do a variety of different things that helps keep my sanity.

Ula Ojiaku

Now, the phrase slippery bananas because you said, you know, when you were, you know, you when you're drafting contracts, you make sure you're avoiding those slippery bananas.

So, what's the perspective? Could you give us a glimpse into what goes on, you know, behind the scenes or in your mind, at the back of your mind when you're, you know, drafting, you're involved in drafting, and reviewing contracts on behalf of a client. What's the perspective you're doing this from?

Richard Stephens

The first line is, and the first principle I start from is that projects, as has been said before, projects don't go wrong for terms of conditions. And I have a friend in the industry, who says that, and he, like me, works for himself. And he says that when he's doing a big contract or for a major client, he's up against a really big city of London law firm. He's there, he'll be negotiating the front end, as we call it, the terms and conditions, the legal bit, that goes at the front, the core of the contract, he'll spend days talking about liabilities and warranties and indemnities.

He says, I'm talking with a partner of the law firm on that, he said, but when it comes to talking about the scope, the SLA, the charging schedule, all these things, he said, I end up negotiating with the trainee. He said, well, why does a contract go wrong? It won't be for anything to do with the indemnities or the liabilities or the warranties. They're there for after it has gone wrong. Why does it go wrong? It goes wrong for the things that are in the schedule, the operational things, that's the thing that you get wrong.

And the second principle I move on to is this, that in my lifetime, I think drafting has simply got worse and worse and worse, and contracts have got longer and longer and longer. And so, having talked about slippery banana skins, then we now get on to another metaphor. And we talk about kicking the can down the street, as lawyers find it harder and harder to come to agreement on important issues, you know, when will such and such a sum be paid? You know, what you have to do to get acceptance of milestone three such that payment can be released. And so, they then insert modern drafting, like the parties will reasonably agree the amount to be released, and it's called kicking the can down the street, it's not actually legally binding. And it's not actually, it's nothing, it's a thing, it gets rid of the immediate problem. And all you're saying is that, you know, the judge or the arbitrator later on can make the decision for you, or you hope they can, they may just throw it out and say, well, it's not really an agreement at all. So that, I think, those are the things that I have noticed in my career, and those I think are the banana skins, the slippery bananas I try to avoid for my client wherever possible.

Ula Ojiaku

Well, that's interesting, and how successful is it? Would you say that a good contract then, this is me stating my view and as a non-expert in this area, I would stand to be corrected by yourself.

So, would a good contract be drafted in a way that enforces both parties to act in the best interests of the other, does it always result in a win-win situation?

Richard Stephens

No, because I'm an English lawyer, I deal with the English common law. And the common law has typically, traditionally taken the line, and still, to a very large extent does, that each party looks after its own interests. I'm not here, when I represent a party, I'm not looking after the other party's interests at all. And my instructions, so to speak, or my implicit instructions, are to do the best deal for my clients, to do the worst deal for my opponent.

Now, of course, that means I'm not actually trying to hamper them or hinder them or throw banana skins under their feet, because of course, if I hamper them or hinder them in the contract it could come back on me or come back on my client, I should say later on, if it's a long project, or outsourcing where the parties have to cooperate, so you do have to get a sort of balance. But the common laws approach, the English common law's approach is typically that each party is expected to enter into a contract, looking after its own interests, it's actually highly topical. I don't want to, you probably don't want to get into the riveting and fascinating details of English contract law, and it's sort of moving in practice and theoretically to adopting a, what you might call a more continental civil law approach by trying to import concepts of good faith (Note: Whilst correct at time of recording, the English Court of Appeal has since limited the use of the term 'good faith'), reasonableness, which are concepts I have to say, which are still by and large alien to my system of law, to the system of law, the country in which we live.

Ula Ojiaku

Okay, wow. So, how then because, we've kind of dug into, you know, speaking about contracts for the, in the interest of the listener, who probably is just jumping in and wondering, okay, what are they talking about? What would you define a contract as?

Richard Stephens

It's just a binding agreement for someone to do something for someone else and for the other to do something to the other party, which is normally payment, that's all it is. But contracts are all around us. And so, I mean, obviously, you know, it looks like you're sitting at home at the moment and you're not in an office. But if you, on the days or hopefully in the days to come when you go back into an office or you go to a physical meeting, and you might stop in a little shop somewhere and buy yourself a cup of coffee. Well, that's a contract. It's actually quite a complex contract as well, because it's a sale of goods and to some extent services, if they're making the coffee for you, in front of you. It imports therefore goods to the law to do with the sale of goods and services. It imports a whole lot of law to do with consumer law because you're a consumer buying a coffee, it's got a lot of law in there to do with health and safety because you know, you want your coffee shop to be a safe place from which to buy your beverage. So, if you actually look at that, and you took all the law and regulations relating to that very simple, I'll have a cappuccino, please, that you could probably fill a shelf with just the law and the cases dealing sales of goods and services, health and safety, consumer law, and all the rest of it. But you don't need to worry about that Ula, because all you want is your cappuccino at the end of the day. So, that is a contract and the contracts are all around us.

Ula Ojiaku

And the seller I would dare say wants to be paid for the cup of cappuccino they made for me.

Richard Stephens

That's the consideration, of course, that's traditionally the consideration, which has been a key feature, of course of English contract law, and not necessarily other systems of contract law, the Scots, for example, don't require consideration in their system of contract law. So, they don't require one party to do something for the other in exchange for something else, it can be a one-sided thing. But don't ask me how they get by, but they do. But the idea of consideration if you drew up, just to show, just to sort of mark out as it were, a casual deal, which you didn't really think was a contract from a proper contract. But a consideration can be anything, it can be a promise to do anything. It can be a promise to go for a walk around the park afterwards. So, I mean, it can be a thing of commercial, it can be commercially valueous. And that's why we have the concept of the peppercorn rent, if you've heard of a peppercorn rent?

Ula Ojiaku

I'm not sure what that means. Could you explain please?

Richard Stephens

Its where you rent a property, in exchange for the promise to pay a peppercorn, where the peppercorn has no commercial value at all. But it's a promise to hand over a peppercorn and the promise, and it's that promise that makes the contract a binding thing. You don't even have to hand it over. But if you promise to pay the peppercorn, that's the consideration. I'd like to see anyone suing someone else for a peppercorn but maybe the law reporters have got examples of that. I think not. But we need some levels of detail there.

Ula Ojiaku

Oh, well, you might find me weird but I do find the concept of contracts interesting. And the fact that someone is promising a peppercorn, is it to show that there has been some sort of fair exchange between the two parties?

Richard Stephens

It simply marks out a contract from what would otherwise be a gift. And it simply marks out what a contract is, so the law simply said, we want just these early signs, it only has to be basic, that the parties were actually serious about entering into a contract. And so, they required consideration, as a consideration can be commercially valueless. But it's just that the parties have thought to do something for each other. We won't even get into an intention to create legal relations, which is another requirement. And you still get some fantastic cases on that. And the case of Blue and Ashley recently, which is where Mr. Blue worked for Mike Ashley of Sports Direct and they were all drinking heavily in the pub. And the evidence was at the end of the evening, that they consumed about 14,15 pints of beer by the end of the evening, although Mr. Blue wasn't present at that stage, but the evidence was that Mike Ashley said that if you can get my share price over eight pounds, then I will give you, you know, a huge bonus of several million pounds, I forget exactly how much it was. Well, is that a contract? And it went to the High Court and the High Court had to, well, what do you think, is that a contract or not? It was said the share price did go a bit over eight pounds and Mr. Blue carried on working there trying to make sure that the share price was maximized. He did actually get an ex gratia bonus of 1 million pounds from Sports Direct. So, did that make a contract?

Ula Ojiaku

That's a question. Yes, because I audited a course in contract law being taught by a Harvard professor, so of course the focus is on the US laws and all that, so not necessarily here, but there's like intent of the person you know if it's a phrase that, or a statement that has been made jokingly, you know, how outrageous it is or whether the other party is being seen to get something in fair exchange, or whether it's a promise for a gift you know, so in those, in those situations, the three situations I've mentioned, it probably wouldn't hold water in a court of law if someone promised you a gift, because it's not contractually binding. But that's…

Richard Stephens

You're learning legal skills already, because you know what you've done, don't you, you've actually used the word probably, you haven't committed yourself.

Ula Ojiaku

No.

Richard Stephens

And you've actually used the word probably because you're not willing to bet the farm on one decision, or the other, one resulting in the other, you know the old joke don't you about the client who goes into the solicitor's office and speaks to the receptionist and says, I want a meeting with the one-armed lawyer, please. The receptionist says we haven't got a one-armed lawyer here, why do you want to meet a one-armed lawyer and he said, well I'm fed up of meeting lawyers who say, well on the one hand this, and on the one hand that, but you've done it immediately, you've used that little word probably and it just came tumbling out in your speech, and you probably didn't even notice it. But I can recognise that you have legal skills already.

Ula Ojiaku

Very kind of you Richard, that means a lot coming from you. But I do fancy myself going, you know, to go and do some sort of studies in law at some point in time. Wish me luck. But this brings us to the concept of agile. Have you had any experience with agile, and what does that mean to you, that term?

Richard Stephens

Agile, I first got used to agile, when I was doing a lot of big scale litigation, when I was working in the city as a partner in a law firm there, and I did a lot of very large IT disputes, and it introduced me to some very odd concepts. And we had to get used to reading up about methods.

And so, on some government projects, they mandated in those days, I don't know if they still do, but in those days, they were mandating the use of SSADM, and Prince overlaid on that as a management methodology. And we looked at this, and it was very odd, and I found it very strange, because what the SSADM and Prince would be doing would be mandating behaviours and actions that were flatly contradictory of the contract that had been written for the parties. And so, moving on from there, as agile became the big thing. We had, first of all, things like extreme programming, and that was getting everything going. And then other more formalised methods of Agile working, or Agile development came out, and I got involved with looking through DSDM as it then was, and thinking and the thing, the word that struck me was that everything will be fit for business purpose. And, of course, fit for purpose is very much a legal expression that's used in sales of goods contracts. And I thought, well, what does it mean to have an agile contract where you're promising the client that something is meant to be fit for business purpose, what is the business purpose? Did you know what it was before you started? What if it changes? I'm a lawyer, and I ask all of these questions. What if, what if, what if? And so I got very interested in writing DSDM, and I put together an industry committee of in-house lawyers working for tech companies and others, and we were just looking through Agile and we had a very senior person from the DSDM Consortium come and speak to us and train us on DSDM, and give us examples of how DSDM could deliver in a way that was better than the old waterfall method of delivery, especially when they were allied with the cumbersome approach of Prince 2 and so we got very interested in this, we tried thinking, well, what would an Agile contract, a contract for Agile development, actually look like? You know, how would it be different from what lawyers have been drafting up until that point and we had a go at it and we sort of let it sort of slip and slide and, you know, we all moved on to different things. And so, we never got there, but it's never gone away as a problem. And I think it is a problem. And I've given various ways I was a proponent of contracting for Agile development, Agile implementation at the time I was doing this, I find myself now cast in the role of villain. And Stewart, a chap called Stewart James has been taking the role of proponent of Agile contracts and I sort of, I the Devil's advocate, and I proposed a different way of working, and I just try and rubbish the view and so we had a go at each other there, we've had a go at each other at techUK if you know techUK, which is the industry body representing IT suppliers in the UK and we recently had another little go at each other in the BCS as a follow up to that talk we both attended over zoom.

But interestingly, they had a poll at the end, and it garnered a huge amount of attention. We had a poll at the end of that having speakers do you have any confidence in the ability to contract for Agile and over 70% said they either had little confidence or no confidence in being able to contract for Agile. So…

Ula Ojiaku

And why do you think there is that low confidence? What could be some of the root causes for this?

Richard Stephens

Oh, because I took them through the points I've made before, and I just pointed out that the Agile working doesn't fit in with English law, and we've already covered that up in a sense, because and I said to you that each party expects the English law, sorry, I should say English law expects each party to look after its own interests, and this idea of collaborative working, where you're working together to do the best you can with the resources available, and tried to come up with incremental deliveries, lots of short, sharp deliveries that give meaningful functionality to the customer, agreeing things on the fly, these things just don't sit very happily with the legal system that expects each party to look after its own interests. A legal system, which requires solid agreements, and which doesn't really regard reasonable endeavors, all these things and good faith doesn't regard these things as binding principles in law.

Ula Ojiaku

Right, okay. Now, but in a case where, on one hand, you know, the two parties are more involved in the contract setting, as in, all right, we'll act in good faith, but at the same time, we would have our lawyers, our legal people, you know, put together an iron clad contract. Do you think that hypothetical situation is possible, in your experience?

Richard Stephens

No, it's not, it's not possible at all, and that's the real problem. And I can take you through some of the cases that show this, if you like, referring to one of them, just got out the slide deck now, might be very interesting to you. It goes back to your first question, what's the point of a contract? Why have it?

Because at the last outing I had, we had Andrew Craddock from the Agile Foundation, and he was proposing, you know, the benefits and the efficacy of agile, agile development, agile implementation. But of course, he was saying it's wonderful it, you know, beats waterfall hands down, it delivers all these great things and I said well, if it's that good, you probably don't need a contract anyway then, do you because it's never going to go into a dispute, then you don't need a contract. On the other hand, if you're a responsible business, you should be asking yourself as the directors of a responsible business, well what if the project doesn't go very well, what if it doesn't? What if it fails? What if I don't get what I expect at the end of the day, and on that point, I propose two reasons. And there are two reasons and both two sides of the same coin, for why an agile contract simply doesn't work. And the first reason is a legal reason. The other reason is a commercial reason. The second reason is what I call the FD principle, or the Financial Director principle. And the legal reason, to put it shortly is that the law, as I say, doesn't recognise a contract for good faith. And in any case, even if it did, you'd just be kicking the can down the street, because if you had a contract to do what you did in good faith, if it all went horribly wrong, which it inevitably will, how would you know whether someone had performed in good faith anyway? You just end up in another dispute, working out what the dispute was all about.

So, and the second reason as I say is the FD principle, because while I was doing this DSDM thing, and I was chatting to a Financial Director of a good sized, medium sized company that was moving very much into IT and technology, it was mostly in the manufacturing sector, but very much absorbing IT, or what tech could do for it. And he said, look, I have the final sign off for any major expenditures, and I get a contract for 5 million pounds. He said, I want to know that at the end of the day, I've got something, when it's over that I that I can touch, I can feel with my fingers, hold with my hands. And I want to know that that's worth 5 million pounds, at least 5 million pounds to my business.

And he said if I just get a contract that's agile, but people are simply saying well we'll work in good faith with each other, and we don't know what we'll deliver, but it'll be small, little bits incrementally and your you may or may not, to use the language of DSDM in the old days, you know, they have this concept of the minimum usable subset. And he said, well, is that worth 5 million pounds, because if that's only 60, 70%, of the full 5 million pounds, then I've been robbed, haven't I, and I've lost 30% of what I contracted for. And that's what I call therefore, the FD principle. And I remember when we were trying to draw up an agile contract, we were pulling teeth, trying to satisfy that FD, or his ilk that the contract would have some sort of effects, something that could be used to beat the supplier over the head. But I don't think we succeeded. And the problem is that every agile contract since, just drifts into this language, as you've said already, of good faith and reasonable endeavours and reasonable agreements on this. And these are all things that English law simply doesn't recognise.

Ula Ojiaku:

Now, that's an interesting story. And you've just brought to light another perspective, that's not usually, explicitly considered in drafting contracts, which is that of the finances, the people who hold the purse strings, the people who sign off, you know, the projects or the programs of work. Sometimes, you know, people have the notion that, you know, agile is the be all and end all, it's not, there is still a place for waterfall. But waterfall is good for where you have straightforward issues, you have a problem, you know the solution, and there's a straight line from A to B, there's no need to go agile. But if it's a complex, adaptive problem where it's complex, and as things change, you know, the environmental change the nature of the problem, you know, keeps changing, you have to, well I say, adopt that agile approach to that now that's why the concept of a minimum viable product comes into play.

And part of it is that, you know, you identify the minimum viable product, you state your assumptions, and then you, you know, create those, experiments based on the hypothesis of the assumptions you've made. And if you're validating, if your assumptions are validated, then you can go forward with, you know, the initiative. But if, at the very, you know, early instance, you're having negative results, you know, that negates your assumptions, then there's no need to go forward.

Although from the Financial Director's perspective, you know, you say, okay, I've wasted it, I've been getting millions worth of money, but the learning has shown that it's a dead end we're moving towards, and it's better that we stop at a million than spending 10 million or even some other humongous amount on something that's probably not going to give any return.

Richard Stephens:

I think it's time to test your legal skills, again then.

Ula Ojiaku:

I'm not a lawyer. I'm not a legal professional.

Richard Stephens:

I think you are a very modest lady indeed. I think you're probably going to go on and say you studied at the New York bar as well.

But let me test your legal skills again, okay? And De Beers is the big diamond sorting diamond company in the world, as you may have heard of them, and Atos Origin are another company, you will doubtless have heard of, and they came to blows back in 2010, because they put out of ITT, for their diamond sorting and aggregating process, which, of course, is dealing with very high value things, namely diamonds. And so, it's all got to be it's a very difficult system to replicate and had all sorts of security and things built into it. So at first, they started doing the requirements analysis. And they did a mini survey, and they got their own view of what it was, and what was involved in doing this complex system.

But they started work and found it was a hell of a lot more complex than they thought, and because De Beers and their operatives started asking for more and more and more, it got much more expensive. So, the original price was 2.9 million and Atos said well actually, it's going to cost nearly 5 million more than that to deliver everything you actually want. But it's interesting looking at what they said because, their Atos internal report said that this project was originally intended to be developed agile style, the team was organised into BAs who could refine the requirements and a pool of devs would be organised into teams to build elements of the solution incrementally, with a project beyond the requirements definition, set up Scrum star, this must be music to your ears, I would have thought Ula, all supported by an architect and a few key designer devs all very DSDM and can work fine in the right context. And of course, with the right customer.

But what happened was, Atos said we need this extra 5 million odd to complete the project. De Beers said, I would have thought if anyone had, you know, 5 million pounds sitting around, it was like De Beers with all their diamonds, just sell a couple of those, I would have thought it was fine but they say get off site. And i