Monday, November 18, 2013

Ruminating on Agile and Fixed Price Contracts

Fixed Price Contracts have become a necessary evil for all agile practitioners to deal with. Over the last few years, I am seeing more and more projects being awarded based on fixed-bid contracts. In a fixed price contract, 3 things are fixed - time, scope and price.

The dangers on fixed price contracts are known to all. But still customers want to go with fixed price because they want to reduce financial risk, choose a vendor based on price, support annual budgeting, etc.

But unfortunately fixed bid contracts have the highest risk of failure. In fact Martin Fowler calls it the 'Fixed Scope Mirage'. Martin suggests using Fixed Price, but keeping the scope negotiable. He calls out an real life case study that worked for him.

In this article, Scott Amber raises questions on the ethics behind fixed price contracts and also elaborates on the dire consequences of it. I have personally seen tens of projects compromising on quality to meet the unrealistic deadlines of fixed price projects. The same story gets repeated again and again - Project slips and pressure is put on developers to still deliver on time and on budget. They begin to cut corners, and quality is the first victim.

This InfoQ article gives some ideas on how to structure Agile fixed-bid contracts.Cognizant has another idea put on a thought-paper called as 60/40/20 that can be used on Agile projects.

IMHO, any kind of fixed price contact would only work if there is a good degree of trust between the customer and the IT vendor. One of the fundamental principles of the Agile manifesto is to "Put customer collaboration before contract negotiation".