Software Dev Agreements: Agile vs Waterfall Contracts

Software projects are notorious for going over budget and over time. The root cause is often a mismatch between the development methodology (Agile) and the legal contract (Waterfall).

The Waterfall Trap (Fixed Price)

Clients love "Fixed Price" contracts because they feel safe. "Build this app for $20k." But software is discovered, not built. Requirements change. If the spec says "User Login," but doesn't mention "Reset Password," the developer isn't obligated to build it in a fixed price model. This leads to the "Change Order" war.

The Agile Approach (Time & Materials)

Agile requires "Time & Materials" (T&M) contracts. You pay for the developer's time, not a specific output.

The Solution: Capped T&M

Structure the contract in 2-week sprints. "Each sprint costs $5k. Client can cancel after any sprint." This aligns incentives. The dev gets paid for work; the client can stop the bleeding if progress is slow.

The "Definition of Done" (DoD)

Never sign a contract without a DoD. Does "Done" mean "Code is written"? Or "Code is tested on iPhone 12, 13, and 14, and deployed to Staging"? Be specific.