Fixed Price

Many people belive that you can't do a fixed price contract in an agile project. Since the whole point of an agile process is that you cannot predict the future, this isn't an unreasonable supposition. However this doesn't mean you can't come up with a fixed price agile contract, what it really means is that you can't come up with a fixed scope contract.

Usually when people say fixed price, they mean fixing price, time, and scope. This requires detailed, stable, and accurate requirements. The whole point of agile development is that it works with more fuzzy requirements. To handle this with a fixed price contract you essentially come up with a plan that says “we have $x to spend and we need a release on 1 Dec. We'll collaborate together to come up with the best set of features to go live with on that date.”

The initial plan for this kind of arrangement is not really any different to a predictive project. The essential difference is that we don't expect things to go according to plan. Instead we expect to deliver a better product that we can currently envision, because we'll learn more about the project as the project proceeds.

Or if we find things are much tougher, we'll find that out too. In which case we'll modify the plan. If the customer doesn't like the resulting plan they can cancel. While this isn't good, they'll usually cancel earlier than they would under a predictive project, because predictive plans tend to discourage change, and thus make it easier to not realize when things are going off course.

For more read: FixedScopeMirage and ScopeLimbering