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Contracting for product development services? Here is an overview of ten widely used contract forms that you could use with your next development effort. The good, the bad and the painful.
Not Agile/Fake Agile
Fixed-scope contracts make learning slow and expensive. In my experience, these generally cause pain. Don’t go there if you can avoid it.
- Fixed-Price, Fixed-Scope — The winner is the master of the change request game.
- Fixed-Scope, Cost Ceiling — The client gets a discount if the supplier finishes early.
- Fixed Scope, Bonus/Penalty Clauses —High risk when the result cannot be defined in advance. And does the client really care about the deadline?
- Fixed-Scope, Fixed Profit —Share the risk; incentivize both parties.
- Price per story point — Encourages optimizing on the measure, not the result.
Potentially agile, but don’t address important risks.
- Time and Materials (T&M) — Cost is the unchecked risk. This can work when the trust is high. Also known as “Cost-Plus” contracts.
- Time and Materials with a Cost Ceiling — Can work if you have a clear product goal, and your team can deliver tangible results every sprint. Risk: What happens when the cost ceiling has been reached?
- Money for Nothing, Changes for Free —This got a lot of hype when it was introduced, and it sounds like a great song, but where are the experience reports? I haven’t seen any.
Well aligned with operational agility
For these to work well, the client supplies an empowered Product Owner, and the vendor supplies the Scrum Master and Developers. All people are dedicated to the project.
- Fixed Price Sprints — Fixed-team, fixed duration. The cost is known in advance. Order the number of Sprints you think you need. Define the goals in each sprint planning, just like it says in the Scrum Guide.
- Phased Development — A product goal, and a budget for each phase, but no fixed scope: periodic renewal.
Which of these have you used? Has anybody used Money for Nothing? I’d love to hear your experience.