While reviewing social media links and blogs, I stumbled across the term “outcomes-based contracting” … and got curious. Not being familiar with the phrase, it intrigued me.

If you look up the term outcomes-based contracting on Google, there’s a good chance you are going to find some article about this idea on sites related to the medical or pharmaceutical industry. But you won’t find much clarity or consensus on what the phrase means. It seems that the term may have become more popular in health industry circles, but it is beginning to spread out into general usage.

Proof that the term is beginning to spread out into other sectors is a great video interview on this exact topic with a software development expert.

The website www.infoq.com (a website dedicated to info for software developers), recently published an interview with Gabrielle Benefield, founder of Evolve Beyond. Benefield teaches and consults on agile software development (think Scrum-based approaches to software development projects), and she knows a thing or two about contracts in this area.

The lessons Benefield imparts about outcomes-based contracts in her field are applicable to any customer/vendor relationship.  The interview goes into some depth, but it’s worth viewing it to see why outcomes-based thinking alone at the start of a contract, before anything is committed to paper, is such a good idea.

The entire interview is a shade under 24 minutes long, but worth the time. Here are a few of the more interesting tidbits.

On how outcome-based thinking clarifies the goal of a contract:

“So when we are talking about outcomes, we are saying ‘What are the desired business results?’… and what we found is that (for) the customers, the reason that they outsource work in the first place is because they need the suppliers (to figure out how to do this).”

On how expressing outcomes helps suppliers to meet customer demands:

“When we ask customers: ‘What are the outcomes you want?’ (the customers) say: ‘Well ok, what we want to do is to automate things, we want to get to this data easily, we want to be able to see these different reports’… Now the suppliers understand what we are trying to achieve.”

On why a good contract is about alignment between customer and supplier:

“A good contract is about the alignment between what the business wants to create and what the supplier wants to deliver. So you have to link those very closely otherwise you go up and down the wrong path and then it’s very haphazard.”

Of course we’d be remiss if we didn’t note that at the end of the day, no matter how the contract was formed, you’ll want a contract management tool like Contract Assistant to help you organize your management of in-house contracts.

Even if both the supplier/vendor and the client/customer are on firmer footing about the end goals, that doesn’t change the necessity of being vigilant about creating your database of contract records, monitoring contract activity, and ensuring key reviews and dates are reviewed by stakeholders.

In any event, if outcomes-based contracts lead to greater customer/vendor understanding, it would be hard to find fault with this trend.

Photo Credit: tec_estromberg via Compfight cc

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and Google+.]