ZeaLake delivers software on shared-incentive contracts. We can also advise you when you engage a software supplier about how to draw up a contract that will align your incentives.
The Agile contract covers considerations such as:
- How can we avoid exceeding the allocated supplier cost and make sure the project budget holds?
- How do we minimize the risk of project failure and ensure that we can change the course if needed?
- How do we obtain the option of adjusting and re-prioritizing requirements during the project and ensure fast delivery of the most important feature set?
Example Agile contract
A manufacturing company was frustrated over the quality level from their previous software supplier who used a strict contract model with fixed scope and cost. The manufacturing company asked us to take over Phase 2 of the project, and they were willing to try a more flexible approach this second time around.
Our contract contained the following elements:
* A brief description of the system vision.
* An estimated timeframe of 9 months for the project.
* An hourly rate that was 40% below average.
* Six milestones of finished feature sets, each triggering a given bonus.
* Estimated hours for each milestone feature set.
* Delivery of some operational features every 2 weeks
Each milestone bonus was measured to complement the hourly rate to reach an industry standard cost level — given that the milestone scope estimates were held. The client was in charge of deciding whether a milestone was met, ultimately by deploying the software. This meant that the client as well as the supplier were rewarded for finishing early and below estimates, and both parties felt the burden of delays.
Note the elements that are not part of the contract: No fixed deadline, no detailed requirements specification, and no explicit penalties.
On several occasions the client benefitted from the flexibility of this contract. They added necessary features that they had not anticipated beforehand, and features that were seen to be less useful than expected were removed. As a result, the client got the functionality they wanted within their allocated budget. The client’s project responsible manager concluded: “This contract gave both parties a mutual incentive to cross the finish line”.