The document discusses contract management for agile projects. It begins by noting that using traditional contracts for agile development can cause issues, as agile involves changing requirements throughout the project rather than defining all requirements up front. It then examines various agile contract models, including time and materials, fixed price per iteration, and variable price variable scope progressive contracts. It concludes that the major attributes of agile contracts are similar to traditional contracts but the content and legal approach must account for agile principles like collaboration, learning, and responding to change over following a rigid plan.

1. ~ Savita Pahuja
CSM, CSPO, PSM I

2. Introduction
The most popular question in agile framework is agile contract management and
budgeting.
If we follow agile for product development and use traditional contract management
then it will become a big mess.
For traditional contracts all the requirements are written beforehand then budget and
time is decided accordingly. But this is not the case with agile. We manage the
changing requirements throughout the project lifecycle.

3. Contract ??
A contract is a written legally-binding agreement between the parties
identified in the agreement to fulfill the terms and conditions outlined.

4. Creation Negotiation Service Change
Level Management
Agreements

5. According to Agile Manifesto – “customer collaboration over contract negotiation”
Successful projects are not ultimately born from contracts, but from relationships based
on 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 model
should ‘relax’ to support increasing “customer collaboration over contract negotiation.”

6. Contract lawyers should know basic agile
principles so that they can better negotiate
contract with customers.

7. Three general areas of a contract
Risk 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 for
change anytime. It limits the scope of the deliverable to deliver by business
value hence limits the payment also.

8. Timing of Payment
Perhaps the most popular system is to pay
each iteration, once there is final acceptance
of the deliverable for that iteration according
to the Definition of Done.
Payment could be 100% of the agreed
iteration price or with some holdback amount.
.

9. Some Popular Contract Models
Time and Materials
This is simply a matter of paying for work as it gets
done. It is obviously the best format to use if the
requirements 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 usable
functionality early, and so establish the trust of the
sponsor for subsequent work.

10. Fixed price per iteration
An amount is fixed for each iteration.
For this requirements defined and agreed-on
before the iteration.
Supplier should be good in estimation and
trust between supplier and customer.

11. Fixed price per unit of work
It follows the agile principle :
“ Working software is the primary measure of
progress.”
According to unit of work this model could be
any one of the following:
“price per story point”,
“price per function point”,
“price per feature point” and so on.

12. Fixed-price, fixed-scope (FPFS) contracts
We should have an initial set of requirements
with estimates for this. So this is not so good
with scrum. But Scrum gives more flexibility
to FPFS model as:
Replace existing requirements with new ones
of equal effort.
Change the order of implementation.
Improve the “definition of done” each
iteration.

13. Variable-price variable-scope progressive
contracts
Better to avoid FPFS contracts in agile
environment with Variable-price variable-
scope progressive contracts, which is more
successful.
This is the best suitable model for agile
projects.
It defines the pricing scheme per iteration, but
do not define scope.
It doesn’t include a total fixed project price but
one variation has a project cap.

14. Comparison of Contract Models

15. Conclusion
At the end we can say that major attributes of agile contracts are the same as traditional but
there is change in the content and legal mindset behind it. All the attributes include the
major 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.

16. Savita Pahuja
Savita.pahuja@gmail.com
http://www.linkedin.com/in/savitapahuja
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