PRINCE2 Agile 2016
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28.2 Primary considerations when structuring an agile contract

When looking to structure a contract in a way that is more conducive to working with agile, it is most important to understand the level of trust and collaboration between the customer and the supplier. Trust is a difficult area to cover in a contract, as many elements of a contract concern the problems that may occur. Therefore a contract needs to support collaborative ways of working (e.g. by containing incentives and levels of commitment).

A customer and supplier may have worked together for several years and the trust and collaboration between them may be very high. Alternatively, if a supplier is new to a customer, levels of trust and collaboration might be unknown and difficult to assess.

The reason this is so important is because it will determine the amount of risk that is shared between the customer and the supplier. The risk relates to the uncertainties of the project. A former United States Secretary of Defense used the phrases ‘known unknowns’ and ‘unknown unknowns’ and these exist on any project. When these unknowns surface during a project, who ‘pays’ for the change: the supplier because they should have anticipated it, or the customer because they should have specified it?

Alternatively, should the ‘cost’ of the change be shared because both parties know that there is uncertainty and ‘unknowns’? The more trust and collaboration that exist between a customer and supplier, the less likely it is that:

  • the supplier will add a contingency premium to the price of the contract in relation to the amount of risk involved
  • the customer will go into too much detail when initiating a project in the belief that they are removing uncertainty (sometimes referred to as ‘the illusion of certainty’).
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