Outsourcing Contracts in Agile: Challenges and Solutions

Anabik is a project and program manager with 17+ years of experience.

Long-term, fixed-bid contracting is a challenge in the agile world, where only limited, near-term work (typically from two to four weeks) is planned and executed. The requirements and solutions evolve over time through the collaborative effort of self-organizing, cross-functional teams

The objective of this article is to review these challenges and derive a possible solution for contracting between outsourcing companies and client companies for agile projects. The review concludes that a hybrid contract is best suited for outsourced agile projects, where the first two to six months are executed with a time-and-materials (T&M) contract, and the rest in a cost-plus-award-fee contract.

Projects and Fixed-Bid Contracts
For decades, waterfall ruled the software development world (and projects in any world, for that matter). This is how most projects are still executed in the non-software world, be it construction of the world’s highest building or even a “simple” wedding.

In waterfall, the contracting approach is straightforward. After due diligence, the buyer (client) decides which product (with what features) or services it needs. It then requests proposals/quotes from sellers. The outsourcing companies (sellers) calculate the overall cost of executing the project based on the number of resources, total time required to implement it, complexity of …

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