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The second chapter of John Stenbeck’s book, “PMI-ACP and Certified Scrum Professional Exam Prep and Desk Reference”, contains an Agile Project Management Processes Grid, and process 2.3 is the third process in the second knowledge area called “Value-Driven Delivery.”    This knowledge area covers for agile project management the equivalent of both scope management and quality control portion of quality management in the traditional project management framework.   The quality assurance portion of quality management is covered in the “Continuous Improvement” knowledge area, the last of the seven knowledge areas in the Agile PM Processes Grid.

Contracts and Agile PM–The Fundamental Disconnect

There is a fundamental tension between the idea of agile, which tries to minimize formal documentation, and the idea of a contract, which is the ultimate form of formal documentation.    Unless you are an attorney, creating a contract is not a value-driven process.   It is the formalization of the agreement between your company and the customer, which is a result of a conversation that is, in fact, creating value.

However, it is necessary, and therefore, the way to create value with a contract is to a) make sure it accurately reflects the agreement reached in conversation with the customer (where the value is actually created), and to b) minimize the time spent negotiating and creating them.

4 Elements of Contract Suitability

Given the above, what  elements can be used to determine whether a contract is suitable for an agile project?

1. Project objectives–it should include the elevator statement and product vision, as well as the project data sheet
2. Roles and Responsibilities–the agile process should be defined, as well as the Product Owner and any other key team roles, with a clear statement of their roles and responsibilities
3. Scope delivery–the method of scope delivery (i.e., backlog grooming) is specified, as well as go/no-go checkpoints;
   and a clause is included for cancelling for convenience at the end of iteration by either party
4. Risks and rewards–cost responsibilities are shared using a target cost principle (where both parties bear the excess cost of changes beyond the target cost); clauses are added for a bonus, penalty, early determination and/or late delivery.

Summary

In general, an agile contract divides shared risk between the parties and defines the trust points between the parties.  It helps avoid problems related to unrealistic promises or demands, or poorly defined functional expectations.   It must be created in the spirit of win-win, rather than “I win, you lose.”   Properly created, it is a springboard for mutual creativity between the parties, not a prison that keeps it from thriving.

There are three possible types of agile contracts

• Agile Iteration Contracts
• Time and Materials Contracts
• Phased Development Contracts

which will be compared and contrasted in the next post.

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