One of the Agile manifesto fundamentals is Customer collaboration over contract negotiation.

At Inphina we truly live by this philosophy. We believe that, contracts can present an exhaustive and time-consuming obstacle, one that often bars a truly efficient transaction between a business and their customer. We would rather collaborate with the customer and deliver the best business value on the basis of our honest and trustworthy approach.

Traditional Contracts

Traditionally, there are two types of contracts: fixed bid and hourly rates. Both of these methods fail with an agile process.

Fixed bid will put the pressure on finishing the minimal acceptance criteria for the contract rather than providing the highest business value during any given iteration.

Hourly rate contracting has the inverse problem. There is no pressure to produce any business value. The pressure is on keeping the hours high and consistent. Of course, not every business abuses these contract methods, but when the situation does go awry, either the business or the customer inevitably lose time and money.

Instead, at Inphina we believe that incentive should exist for both parties to produce continuous business value.

Inphina Contracts - Pay Per Velocity (PPV) ©

One way that Inphina has re-invented contract strategy has been to bill based on velocity, or, the amount of story points signed off on by the customer (passing acceptance tests). The customer will own the acceptance test and know for certain that they are the specification of the feature that they are paying for. The scope and priority the customer chooses will be linked to the amount they pay, producing a necessary pressure for simple and fruitful stories.

Another important aspect of Inphina's plan is that when a development team over performs, they get compensated for the extra velocity achieved. When they under perform, compensation is taken away. Over the course of a large amount of time the rise and fall in payment will naturally level out, and the total amount received will turn out higher or lower depending on performance during certain iterations. This creates pressure on each iteration to produce as much as possible-and not at the cost of future iterations, as payment has the logical effect of "cutting the fat off".

Inphina has determined that billing based on velocity is the greatest and most efficient way to create the contract "pressure" that results in our ability to deliver business value. Using this model, both the software company and customer benefit or else the relationship will naturally dissolve.

A small complication with this approach

• Finding an accurate measurement of velocity can be difficult: As the value of story points are not scientific or quantifiable (which is why most companies stick to billing which is quantifiable and strict). Because of this complication, the Inphina method takes a sincere amount of dialogue, interaction, and faith in integrity from both the customer and the development team. Both sides must be actively involved in the process, and agree to a relationship that is open and honest. Here is a successful formula we have used before:

Actual Velocity = (Last iterations velocity + current iteration achieved velocity) / 2

At Inphina we believe that it is important to build a relationship between two companies that mutually benefits both of them. This sets up a healthy dialogue channel between the two to celebrate success and tide over adversities.