Agile Project Contracts

Even if the Agile Manifesto contains the passage in which it is stated that customer collaboration is more important than contract negotiations, one still needs a project contract. The contract is supposed to support the agile methods and underpin the bilateral, trustful collaboration.


Agile software development requires agile project contracts. One must consider, however, that one of the fundamental concepts of agile methods is based on the assumption that a software project cannot be described with all requirements in detail at the beginning of the project. Subsequent adjustments are therefore highly probably and should be capable of implementation without large obstacles such as change request processes. To ensure this, AOE has develop a special agile project contract.

A Paradigm Shift in Collaboration

Agile development is based on a fundamental paradigm shift. Whereas, in the traditional approach, costs and delivery date are based on the specifications (“scope”), in the agile approach costs and delivery date are predefined and the scope is developed on that basis. Within certain limits the scope remains flexible throughout the entire project.

In traditional contracts the three cornerstones of a project (scope, costs, date) are established at the beginning, reducing each estimate to absurdity. Accordingly, the contractor must include an “insurance” for his services, the so called buffer. For the contractor, the goal is therefore to maintain as much buffer as possible all the way to the end of development (margin); for the client the target is to convert as much of the buffer as possible into project value. The result: the goals of both parties are at cross purposes.

Agile project contracts are equated with a particularly trusting partnership; the customer pays only the actual effort (costs and fixed delivery date). Both parties share the common goal of achieving optimal team coordination and maximum performance through efficient collaboration, thus delivery the highest possible ROI for the customer (scope). Contractor and client are not opponents, but rather equal partners with a joint product vision.

Agile Project Contracts

The AOE Project Contract

The AOE project contract is based on the agile fixed price. At first, budget and delivery period are determined arrangements made predefining how scope management is to be mutually handled. Thus, a framework for cooperation is created, a budget agreed upon and a release plan developed within the contract itself. The scope is also attached in the form of an estimated backlog, and can be adjusted as needed at any time. The term used in this instance is risk share. Especially in the beginning of a project larger insecurities exist that are shared by both parties. AOE contracts therefore contain a special clause, which allows the customer to discontinue the project after the completion of each iteration. This option loses influence as the project progresses and the mutual trust increases. There has never been a project discontinuation of this nature in the history of AOE.

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