In this session, Peter Stevens gave his view on 10 types of contracts for agile projects.
As the agile manifesto states ‘Customer collaboration over Contract negotiation’, contracts are still important when working with external suppliers. The right rules enhance the chance of success. Contracts can lead to certain behaviors, so be sure to negotiate terms to get the right behaviors.
What should be in a contract? Peter suggested
• Outline of the project structure
• Key personnel (who is responsible at which level, and what are their tasks?)
• Payment and billing
• Early and normal termination
• Legal details
The audience added
• Scope (for instance User stories
He explained some contract forms:
Time and Materials
Time and materials with variable scope and cost ceiling
Customer and vendor focus on achieving the desired business value within the budget. Risk exists that customer will end up with something that’s only partly finished.
Fixed Price Fixed scope
Time and materials with fixed scope and cost ceiling
The vendor only charges actual work. Project costs less when delivered earlier. If the cost ceiling is reached, it behaves as a fixed price contract. There’s no incentive for the vendor to deliver earlier, so he will try to hit the cost ceiling exactly.
Chop the project into smaller releases. Funding is done per release, so vendor and supplier are committed to deliver each release in order to be able to fund the next one. Scope changes become new business goals for next releases prioritize by the product owner.
Vendor works at an agreed profit margin until a certain cost ceiling after which he works at cost price. The customer can choose to back out after each sprint by paying a cancellation fee of the profit part of the remaining work. Both customer and vendor have an incentive to finish early.
Bonus / penalty clauses
The vendor receives a bonus if delivered ahead of schedule, and pays penalty if delivered behind schedule. Scope is most likely to be fixed because of the potential impact on the schedule. Often used for construction projects.
Money for nothing, changes for free
Work is basically on a time and materials basis with a cost ceiling, but the customer can stop the project when he realizes enough business values has been created. A cancellation fee equal to the remaining profit is paid. Customer and vendor have an interest in delivering the project early due to lower costs or higher margin.
Two partners invest in a product of joint interest.
Different contract have different accents, and foster different relationships.
You can find Peter’s presentation here.