What are Agile Contract Types?

When it comes to agile methodology, both the vendor and the customer have to come for an agreed agile contract type prior to the execution of the project. Since agile is defined to be embracing changes, it’s difficult to establish a contract. Both parties are supposed to cooperate with each other in order to deliver value adding features throughout the entire project life-cycle. (The relationship between the customer and the vendor in agile methodology has been defined and stated under ‘Agile Manifesto Principles‘ and ‘Agile Manifesto Values‘) There are few agile contract types defined to be used based on few factors such as the relationship strength between the customer and vendor, etc…

Even though embracing changes has made it difficult for both parties to sign an agreement, there are few contract types that still both parties can agree upon prior to the project execution.

Fixed price, Fixed scope (Fixed time is also preferred)

Under this contract, an agreed budget with a fixed scope is provided (Just like in waterfall). By using agile techniques, project efficiency can be enhanced in order to gain maximum benefits out of the agreed price. This contract is good to use when requirements are stable and the relationship between the customer and the vendor is not stable (Not trusting each other).

Fixed price, Fixed scope (Fixed time is also preferred, but scope can be altered by collaborating with the customer)

The project team works closely with the customer from the beginning to identify the project requirements and priorities. Once the project is started, the project management team has to work on a prioritized list and at the end of a delivery, both parties can discuss whether to change the project direction based on the user needs.

Time and Material

According to this contract, customer has to pay for the work being done. This method / type works better when requirements are not stable / volatile. This is the simplest contract to be signed off if both parties trust each other.

Not To Exceed with Fixed Fee (NTE/FF)

Here, the vendor team is promised with a guaranteed profit margin. Both parties protect each other with the speed of project work being executed (Faster or Slower) and work on unexpected events to drive the project towards success.

Fixed price per function / story point

Initially both parties must agree on the unit of delivery (story points / functions / function points). A fixed price per unit is agreed and a certified functional point auditor is selected and advised to observe the number of units delivered at the end of the project. The customer has the freedom to change the requirement throughout the project and the vendor is encouraged to work efficiently.