The contract may be that, but then as part of that contract you work together with the client, using your experience and foresight to actually create a more detailed "spec". That is still not completely formalized, but your developers/colleagues using their experience in other projects can "draw the rest of the owl" from that semi-vague spec -- and the final delivered software is the spec itself in a way.

It's absolutely not impossible to simply add one more layer in-between the developers "drawing the rest" and delivery. They just not formalize it as software in one go, but "in two".