Wednesday, September 28th, 2016
Contract negotiations between supplier and client, whether Time and Materials or Fixed-Price, takes time. This time simply delays the start of the project. Eventually pressure will be built and decisions made that perhaps one or both parties will regret. Essentially however, whatever anybody says about win/win, it is simply two elephants testing the strength of the other.
When selling products, fixed-priced with fixed-scope contracts are part of the culture of software in many companies. It’s simply the way in which things are done. But there is a new contract model emerging in the software industry, based on the idea of delivering features sorted by their value; a model where there is really possible a win/win for both sides, the customer and the supplier.
This new contract model, proposed by Jeff Sutherland, one of the creators of Scrum, embraces two concepts: termination (Money for Nothing) and substitution (Your Change for Free).
Money for Nothing
This new model is a fixed-price contract that allows the client to terminate it at any point in time (because they’ve already got what they really need). When the client terminates a contract, he is only billed for the remaining 20% of unbilled contract value.
It’s based on the phenomenon of exponential accumulation of value in highly productive Agile teams versus linear payment terms.
Your Change for Free
In any traditional project, the impact of change can be immense. It costs time and energy and nerves for both sides. Rather, “change for free” means that the customer can’t add scope to the project, but can make changes as long as they substitute work still to be done in the backlog with work that is the same size or smaller. So new work can come up, the customer can change their mind, but the overall size of the project remains the same, which means that the team should still be able to deliver the project by the scheduled end date.
Summing-up: One of the key principles in Agile development is “Customer collaboration over contract negotiation”. Including in the contracts these two clauses, “Money for Nothing” and “Your Change for Free” allows both the customer and the supplier work collaborativelly in a project, increasing the success rate of the project.