Contracts and procurements are vital for project management, because the project team may not be able to develop or complete every activity or produce all the required services. in these circumstances, the management may decide to acquire these products, services or deliverables from outside the project, in other words, outsource it.
To make such a decision, the management might use a variety of techniques, such as alternative analysis, make or by analysis, and monetary value analysis, which is known as a decision tree. When project management decides to outsource, they can start the bidding process, and sign the agreement.
The type of contract in the predictive approach is robust and binding, however, agile management seeks customer satisfaction and provides incremental viable product to acquire the feedback for improvement, and critically accept the change all the time.
Predictive Approach Contracts:
“Agile does not mean lack of discipline, just a different kind of discipline.”Ken Schwaber:
A. Fixed price contracts:
A simple contract that puts all the contract risks on the service provider (seller or the contractor) by putting a certain fixed price for the delivered product and service. It is generally used when the scope is determined and stable and is usually used in government projects.
B. Cost-reimbursable contracts:
There are many types of this contract, but the idea is to cover all the costs for the contracting company besides it benefits either by intensive fee or fixed fees. Cost-reimbursable contracts encompass various subtypes, with the primary objective being to reimburse all expenses incurred by the contracting company. Additionally, the contracting entity stands to gain through either an incentive fee or a fixed fee. This arrangement ensures that all costs are covered while providing a mechanism for the contractor to realize additional benefits.
C. Time and material contracts (T & M):
In this contract, the client (owner) pays the contractor based on the time they spent at work and the amount of material they used doing it. This kind of contract is used for hiring experts.
While contracts create a binding obligation which must be stable and followed to avoid conflict and failure, becoming agile means accepting the change at any time during the project. Based on Agile manifesto, states that one of its values is “customer collaboration over contract negotiation.”, Agile does not deny predictive approach contracts, however, it adopts the concepts of predictive approach contracts with modifications addressing agile principles. For instance, agile seeks short-term pricing strategies rather than long-term.
Agile contracting techniques:
A- Fixed-price increments:
In SCRUM, the product owner collects the customer requirements in the product backlog from the user’s story. One of the contracting methods is using fixed price contracts for these users’ stories or even for iteration, these small outputs represent a tangible feature a customer can use.
B- Graduated time and materials:
To motivate the agile team, we can reward the quality of work, by adding an intensive or reward fee in the contract. For example, the coding team can get a fee or higher rate for handling the increments ahead of schedule.
C- Early cancellation option:
Because agile project scope can change at any time, early cancellation terms can preserve customer time and effort and give the agile team a certain cost for a service that hasn’t been executed. That can happen if the team completes the customer requirement at fewer intervals than planned in the initial scope
D- Dynamic scope option:
In this technique, we can allow the stakeholder to change the scope, while keeping the schedule and cost stable. A suggested approach to that is when a certain customer has the option of adding a user story or a feature to the backlog (changing the scope), only after he/she erases other features having the same weight (story point) or higher, so he can keep the cost and schedule fixed.
E- Multi-tiered structure:
The contract of Multi-tiered structure is written in several documents, the main document (master agreement) contains firm items such as information about conflict management and guarantees. However, other documents contain general agreement on points that are more dynamic and can change, such as scope, schedule and cost.
“Agile is not a destination, but a journey. It is not a set of practices, but a mindset.”Ron Jeffries:
In summary, Agile procurement processes employ a tailored approach to contracts and agreements, departing from traditional predictive methodologies. The adaptation aligns with Agile principles, fostering flexibility and embracing change within the project management framework’s six essential constraints: scope, time, cost, quality, risk, and customer satisfaction. By modifying terms and conditions to accommodate Agile tenets, organizations can navigate dynamic project landscapes with greater resilience. This agile-centric procurement strategy ensures responsiveness to evolving project requirements while upholding the core principles that govern successful project delivery. The referenced sources further validate the efficacy of this approach, emphasizing its relevance in contemporary project management paradigms.
PMI – AGILE PRACTICE GUIDE
PMI – PMBOK GUIDE