IntroductionThe most popular question in agile framework is agile contract management andbudgeting.If we follow agile for product development and use traditional contract managementthen it will become a big mess.For traditional contracts all the requirements are written beforehand then budget andtime is decided accordingly. But this is not the case with agile. We manage thechanging requirements throughout the project lifecycle.
Contract ??A contract is a written legally-binding agreement between the partiesidentified in the agreement to fulfill the terms and conditions outlined.
Creation Negotiation Service Change Level Management Agreements
According to Agile Manifesto – “customer collaboration over contract negotiation”Successful projects are not ultimately born from contracts, but from relationships basedon collaboration, transparency, and trust.‘Successful’ contracts contain mechanisms that support the building of collaboration,transparency, and trust.As trust builds between a customer and supplier, the commercial and contract modelshould ‘relax’ to support increasing “customer collaboration over contract negotiation.”
Contract lawyers should know basic agileprinciples so that they can better negotiatecontract with customers.
Three general areas of a contractRisk and Exposure.Flexibility to allow for change.Clarity of obligations, deliverables and expectations.Agile methods have low risk compared to traditional projects and are open forchange anytime. It limits the scope of the deliverable to deliver by businessvalue hence limits the payment also.
Timing of PaymentPerhaps the most popular system is to payeach iteration, once there is final acceptanceof the deliverable for that iteration accordingto the Definition of Done.Payment could be 100% of the agreediteration price or with some holdback amount..
Some Popular Contract ModelsTime and MaterialsThis is simply a matter of paying for work as it getsdone. It is obviously the best format to use if therequirements are volatile.The difficulty is that it requires a certain level of trust.What some contractors do is to request a trial period.Using the agile approach, they deliver usablefunctionality early, and so establish the trust of thesponsor for subsequent work.
Fixed price per iterationAn amount is fixed for each iteration.For this requirements defined and agreed-onbefore the iteration.Supplier should be good in estimation andtrust between supplier and customer.
Fixed price per unit of workIt follows the agile principle :“ Working software is the primary measure ofprogress.”According to unit of work this model could beany one of the following:“price per story point”,“price per function point”,“price per feature point” and so on.
Fixed-price, fixed-scope (FPFS) contractsWe should have an initial set of requirementswith estimates for this. So this is not so goodwith scrum. But Scrum gives more flexibilityto FPFS model as:Replace existing requirements with new onesof equal effort.Change the order of implementation.Improve the “definition of done” eachiteration.
Variable-price variable-scope progressivecontractsBetter to avoid FPFS contracts in agileenvironment with Variable-price variable-scope progressive contracts, which is moresuccessful.This is the best suitable model for agileprojects.It defines the pricing scheme per iteration, butdo not define scope.It doesn’t include a total fixed project price butone variation has a project cap.
ConclusionAt the end we can say that major attributes of agile contracts are the same as traditional butthere is change in the content and legal mindset behind it. All the attributes include themajor agile factors of collaboration, learning, evolution etc.Agility implies“Responding to change over following a plan”And“Customer collaboration over contract negotiation”These principles majorly impact the contract creation.