An iterative approach like Agile Project Management, guides a project throughout the production process, just like in Agile Software Development, where several iterations are reviewed and critiqued by stakeholders before moving onto the next step of the project. There are different types of contracts governing various types of agile projects. Such contracts or agreements may seem to be a set of guidelines or rules to be followed, but they hold significance as fixed instruments, which can lead to unfavorable consequences if not obliged to. Agile contracting lets the parties focus on the result of the Agile in a collective manner.
Here are ten contracts for your next agile project:
1. Fixed Price
Here the risk is mostly associated with the developer or supplier who agrees on the deliverables. The customer intends to have this sort of a contract since the target price is fixed; the developer tries to complete the project at a lower cost than the target cost and the satisfaction of the customer is guaranteed. After all, that is the prima facie of developers. However, if the project takes longer or costs more than the fixed price, then the cost is borne by the developer leading less scope for changes in this type of contracts.
2. Incremental delivery contracts
The project is broken down into segments, wherein the customer reviews the development stage at predetermined review points. Both parties evaluate the pros and cons at each review point and then decide on the further steps. At the end of each successful review point, both parties have incentives. Each increment subsequently improves the overall development of the project that ultimately is a result of cooperation leveraged in incremental delivery contracts as opposed to the rigidly fixed price contracts.
3. Time and materials
It is one of the most convenient forms of contracts wherein the supplier makes the payment for the amount of work or service that is done using necessary materials for creation. Since the customer holds the edge of changing minds, the supplier enjoys this type of contracts. However, such agreements sustain firmly on the legitimate efforts of the supplier to cut down the cost for the benefit of the longevity of the arrangements.
4. Time and materials with fixed scope and a cost ceiling
In this form of contract, if the supplier completes the task early, the payment will be made only for the actual efforts. There is no scope for incentives for finishing the project early. Having said that since the cost of the project is capped, the supplier will aim to achieve the maximum capped cost of the project.
5. Time and materials with variable scope and ceiling
As a consequence of the capped limit, the financial risk associated with the customer is less. The variable range and capped budget bring a collaborative approach from both supplier and customer to complete the project. This sort of contract is ideal for budget oriented projects. A constructive relationship upholds this type of contracting in achieving desired business.
6. Bonus/Penalty clause
As the name suggests, the supplier will be rewarded with the bonus upon early completion of the task and will be penalized for late deliveries. Such contracts reduce the potential risk of late deliveries for the customers. Penalty clause makes the supplier forsee the consequences related to delay and drives towards completing the task on time or even early.
7. Joint Ventures
The two parties involved in the agile project agrees upon to invest in a project with mutual interest. Though the development phase of the project may not be rewarding for either of the parties involved. There must be a return on investment for both parties either from the revenue or by the end result of the project. Here the project itself to be considered as a separate company which needs to be developed and marketed for a common benefit.
8. Money for nothing changes for free
This type of contract was created by Jeff Sutherland, which involves two clauses. The first clause is altered for free. This clause essentially leverages space for any new features to be added in a project without charging any fee for the changes made. Secondly, money for nothing clause is a win-win situation for both supplier and customer. Here the supplier separates the different segments of a project and delivers the most prioritized segment first.
9. Fixed profit
Every project ideally has a predetermined cost and profit estimation. By using fixed profit contracts, the parties involved in making the said project, agree upon a fixed amount regardless of the time period of the work completed. Since there is an incentive set for both, parties like the customer save cost, and the supplier has the chance of seeing higher profits.
10. Sprint contract
A sprint contract is ideal for Scrum projects wherein a project is broken down into bits. An agreement between the product owner and a team performing a sprint is known as a Sprint contract. The team tries to convince the product owner by delivering expected quality work in one sprint.
In a nutshell, having proper contracts reduces the risk associated with your clients, as it increases human accountability at both ends. Though your agreement does not serve as your project manager, it certainly acts as a risk mitigation technique. So even if you have a cordial relationship with your clients, a contract in place never hurts!
To know more about the Contracts for your next Agile Project, you can also consider our Business Analyst Certification.