12 April 2024

Agile vendor management and contracts

Agile Vendor management approach

  • The Agile Manifesto values customer collaboration over contract negotiation which sets an important tone for procurement relationships on agile projects.
    • The Agile Manifesto sets forth the idea that a buyer and seller work together to create products and governs the entire procurement process.

Determining need and selecting a vendor the agile management way

  • On agile projects, procurement starts when the Developers decide it needs a tool from or the services of another company in order to create the product.
    • The Developers and the Scrum Master work with the Product Owner to procure any necessary funds.
    • The Developers may need to compare tools and vendors.
    • After you choose what to buy and where to get it, the process is usually straightforward:
      • make the purchase,
      • take delivery,
      • and procurement is then complete.
    • Procuring services is usually longer and more complex than with tools.
    • Some agile-specific considerations for selecting a services vendor include
      • Whether the vendor can work in an agile project environment and, if so, how much experience the vendor has
      • Whether the vendor can work on-site with the Developers
      • Whether the relationship between the vendor and the Scrum Team is likely to be positive and collaborative

Contracts and cost approaches for services the agile management way

  • Evaluating cost structures for an agile project
    • Fixed-price projects:
      • A vendor works on the product and creates releases until the vendor spends all the money in the budget, or until it delivers enough product features, whichever comes first.
    • Fixed-time projects with a specific deadline
      • For example, you may need to launch a product for a specific event or to coincide with the release of another product.
      • With fixed-time projects, you determine costs based on the cost of the vendor’s team for the duration of the project, along with any additional resource costs, such as hardware or software.
    • Time-and-materials projects
      • Work with the vendor lasts until enough product functionality is complete, without regard to total project cost.
      • You know the total project cost at the end of the project, after your stakeholders determine that the product has enough features to call the project complete.
    • Not-to-exceed projects
      • Projects in which time and materials have a fixed-price cap.

Agile contracting

  • Agile planning provide great flexibility and allow us to manage changing requirements & priorities.
    • This flexibility can create problems when defining acceptance criteria for contracts and when
      we outsource work.
  • The goal of Agile contracting is closer cooperation between Team and Customer
    • The goal is represented in the 3rd entry of the manifesto « Customer collaboration over contract negotiation »
    • AGILE requires more trust between the partners than the traditional method
    • For trust-invested partners AGILE gives an enormous competitive advantage
    • For untrusting clients, agile contracting will be a though sell

Money For Nothing & Change For Free (J. Sutherland) :

  • Contract structure starts with a standard fixed price contract that includes T&M for additional work.
  • Inserting a clause “change for free” : the customer can only use this clause if they work with the team on every iteration, failure to be engaged in such a way voids the clause and the contract reverts back to T&M.
    • Assuming the customer stays engaged , the Product Owner can reprioritize the backlog at the end of an iteration, and changes are free if the global contract work is not changed.

DSDM Contract

  • This contract focuses on being “fit for business purpose” and passing tests rather than matching all specifications.

Graduated Fixed Price Contract

  • under this contract if the seller delivers on time they get paid for the contract under standard rate, early delivery + rate, late delivery – rate

Fixed Price Workpackages

  • This approach allows customer to reprioritize the remaining work based on evolving costs, and it gives the ability to update their costs as new details emerge, removing the need for excessive contingency funds

Customized Contracts

  • Contracts can be pieced together to create a customized or hybrid contract that benefits both the customer & the seller.
  • On AGILE contracts procurement has always been particularly challenging, since the scope is not fully determined early.
    • Degree of success is most of the time established when parties continue on future collaboration

Creating a contract for an agile project

  • The Scrum Master is generally responsible for initiating the contract creation, negotiating the contract details, and routing the contract through any necessary internal approvals, including review by a legal or procurement expert.
    • At the very least, most contracts have legal language describing the parties and the work, the budget, the cost approach, and payment terms.
    • A contract for an agile project may also include:
      • A description of the work the vendor will complete
      • The vendor may have its own product vision statement, which can be a good starting point to describe the vendor’s work
    • Agile approaches the vendor may use, including :

Working with a vendor on an agile management project

  • How you work with a vendor on an agile project depends in part upon the vendor team’s structure.
    • In an ideal situation, vendor teams are fully integrated with the buyer’s organization.
      • The vendor’s team members are collocated with the buyer’s Scrum Team.
      • Some Developers include vendor team members in their Daily Scrum meetings.
      • This can be a good way to get an idea of what the vendor team is doing every day and to help the Developers work more closely with the vendor.
    • You can also invite vendors to your Sprint Reviews to keep them informed on your progress.
    • If the vendor can’t work on-site at the buyer’s company, it can still be part of the buyer’s Scrum Team.
    • If a vendor can’t be collocated, or if the vendor is responsible for a discrete, separate part of the product, the vendor may have a separate Scrum Team working on the same Sprint schedule as the buyer’s Scrum Team.
    • If a vendor doesn’t use agile project management processes, the vendor’s team works separately from the buyer’s Scrum Team, outside of the Sprints, and on its own schedule.
      • The vendor’s traditional project manager helps ensure that the vendor can deliver its services when the Developers needs them.
    • The buyer’s Scrum Master may need to step in if the vendor’s processes or timeline becomes a roadblock or disruption for the Developers.

Closing a contract on an agile management project

  • When a vendor completes work on a contract, the buyer’s scrum master usually has some final tasks.
    • If the project finishes according to the contract terms, the Scrum Master may acknowledge the end of the contract in writing.
    • If the project is a time-and-materials project, the Scrum Master should definitely do so to ensure that the vendor doesn’t keep working on lower-priority requirements — and billing for them.
    • The Scrum Master may be responsible for notifying the buyer’s company accounting department to ensure that the vendor is paid properly.
    • If the project finishes before the contract dictates the end, the Scrum Masterr needs to notify the vendor in writing and follow any early termination instructions from the contract.
  • Most large organizations maintain a vendor profiling system to manage the relationships with their vendors.
    • This database contains information about skills, rates, and former projects that have been run with each vendor.
    • A special vendor management database may help large organizations here — as long as the vendor evaluation is based on « soft » criteria, such as collaboration level and software quality, rather than on « hard » facts, such as rates and willingness to subordinate during negotiations.
  • More or less, sophisticated ranking systems categorize the vendors from strategic partners to vendors the company wants to get rid of.
    • Used wisely, these systems can establish both a business and a legal relationship with your vendors in which you don’t have to step on the thin ice of contracting a single agile project.
    • Therefore, rather than focusing on vendor process certifications, size, and rates, the ranking should focus on criteria such as the following :
      • Productivity
      • System quality
      • Flexibility
      • Collaboration level
  • Beyond a single effort, agile development is about building trust.

More informations at PMI-ACP exam

PMI-ACP Tools and Techniques flashcards

PMI-ACP Knowledge and Skills flashcards

PMI-ACP Domains and Tasks flashcards

Updated : 25/10/2021

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