Haneen AlHaddad
Great question — and one that touches on a common dilemma in modern project environments.
According to the PMI’s current guidance (PMBOK® Guide – Seventh Edition and PMIstandards+), the first step should be to assess the nature of the work and choose the most appropriate development approach — whether predictive, adaptive (Agile), hybrid, or incremental — before locking in contractual terms.
This decision depends on several factors:
- Stability of requirements
- Technological uncertainty
- Rate of market change
- Organizational culture and agility maturity
The PMI supports this decision-making through its Tailoring Framework, which helps project teams make deliberate, context-driven choices about life cycle selection and project delivery strategy.
The goal is to ensure that methods, tools, and practices align with the specific characteristics of the work and the environment.
In addition, some external tools — such as the Agile Suitability Filter (commonly used in Agile communities, but not developed by PMI) — can further support these discussions.
These tools help visualize project and organizational characteristics, and foster better stakeholder alignment on whether Agile methods are suitable.
But what about contracts in Agile environments?
Agile and contracts are not mutually exclusive.
In fact, several contract models exist that maintain budget control while supporting Agile principles, such as:
- Time & Materials with a cap – provides flexibility with financial safeguards.
- Fixed Price per Sprint or per Release – ties cost to incremental value delivery.
- Rolling-Wave Contracts – reviewed and adapted at predefined intervals.
One particularly valuable model is the “Money for Nothing, Change for Free” contract proposed by Jeff Sutherland, co-creator of Scrum.
It addresses two common challenges:
“Money for Nothing, Change for Free”
Change for Free: The client can change backlog items at any time, as long as the value is equal or less. This allows responsiveness without renegotiating the contract continuously.
Money for Nothing: If the team delivers value earlier than expected and the client chooses to stop the project, the vendor receives a portion of the remaining contract value as a reward for efficiency. This incentivizes early, high-impact delivery.
This model reinforces Agile principles — continuous collaboration, incremental value, and adaptive planning — while offering predictability and risk-sharing.
In summary:
- Start by selecting the right development approach, based on project complexity, uncertainty, and business environment.
- Then design the contract to support that approach — not the other way around.
This strategy ensures alignment between delivery model and commercial structure, builds trust, reduces risk, and maximizes value delivery.
