The most common type of contract used in Scrum is either time and materials (T&M) or a pseudo-fixed price. Pseudo-fixed price is just a T&M contract with the cost of each sprint defined as resource hours multiplied by the rate. The true fixed-price contracts are the ones for which the utmost care has to be taken; otherwise, the team will find itself working on a worse-than-Waterfall project.
I have lead many projects in Scrum and dynamic systems development management in Europe and have observed some common mistakes managers make in writing a fixed-price Scrum contract. For example, Scrum contracts are written in the same way as traditional contracts, and the managers add only the "will be done in Scrum methods" line in the contract. In the traditional contract, the cost and time are always variables, with some change of budget or contingency added. However, the customer argues that because it's Scrum, and that the concept of timebox applies, the contingency and the change budget inherently get removed. This makes the contract fixed time, fixed cost, and, of course, fixed scope.
I suggest the following modifications to traditional fixed-price contracts to make them applicable to Scrum:
- Modify the scope section by using the MoSCoW principle (the Musts, the Shoulds, the Coulds, and the Woulds).
- Use the Shoulds and Coulds as a scope tolerance when the customer asks for changes to be incorporated. Obviously, you will adapt to the customer changes, but then the customer should also understand that the scope cannot be fixed and that there is always a cost for the change. It is just that the cost of the change is taken in terms of knocking off some of the scope from the Shoulds or the Coulds.
- Include a condition that states that the scope is flexible, but when it is added to the Must section, it is fixed. However, the scope written in the Should and Could section is "negotiated" based on the changes suggested by the customer.
Leave some room for the negotiation of scope in the contract. Otherwise, you will find your team doing a fixed-price, fixed-scope, and fixed-time contract, which would be really unfortunate for the team.