Agile Contracts

Every Project Manager is not  interested in – Agile Contracts. They feel constraint!

No one like to talk about Contract because of the Agile Core Value say : “Customer Collaboration” over “Contract Negotiation”.

Generally speaking the  process of generating the contract is as : Collaboration -> Commitment -> Accountability -> Contract


How it all started : Here is my Business Requirement. How much it will cost and when it will be done?

We know that it is going to be wrong no matter what we put in. Then how we will derive a business proposal?

One is through the Flipping the iron triangle. Normally we go through the scope  – to schedule and cost calculation. However, many time we commonly focus on schedule and the cost.

The successful project  could be driving a scope from schedule & cost.


With value-driven based on the schedule and cost one can deliver the valuable items for the Business.


Draw Proper Distinctions:

Proposal that transit to Project by having a contract.

Proposal is not same as Project.

Costing System:


The old model works with: If you win, I must loose. If I win, you must loose.

Fixed Contract – The model it works with that both win, both loose concept.



Another way is that to deliver the valuable items in iteration. Offer to cancel the project after some specific % of valuable items have been delivered. In this early cancellation clause customer has been asked to pay for the items that have been delivered + 20% cancelation fee on the remaining 15%.


Through this way you have saved customer money and you have been paid 20% without doing anything.


Examples are as below:

NOTE: Although profit is much better. However, some management may prefer revenue than profit. However, its a management level issue.

Another technique is Fixed Price work packages or in Agile form called Fixed Price Stories

Idea is to decompose into smaller packages; that is what agile practitioner should do.  Through this way I have reduced the risk. You start with the first delivery and then with the option to change the requirement along the way. Then you can re-estimate.

Through this way you are sharing a risk.

As a agile project manager you are not supposed to put everything in the contract.


Contract should cover More Stable, Moderate Change, and More Changing component

Under Master contracting Agreement – you can put penalty as it is not changing quite often.

Don’t have a single document contract. Create based on something stable, something changeable.

You cannot think of putting everything in the Contract. That is what legal would want to. But this is not a recipe of collaboration. However, PM should not be signing a contract.