- Client can change requirements for free ("change for free"). Traditionally any change to requirements results into repricing that usually causes the project costs to go up.
- Early delivery results into a bonus for the vendor which is equal to 20% of the remaining contract value. This is what is called "money for fee."
Hybrid Contract- T&M Definition Phase, Fixed-price Delivery Phase. Essentially vendor will work with the client to on a time and material basis to build the product backlog (requirements) and produce a high level estimates and validate assumptions. Once both parties are comfortable with the definition of the project, the project enters into a fixed-price delivery phase. This will work when the product backlog can be defined reasonably well in a reasonable time-frame as well as the the development team is experienced in the domain and technology and that the development team knows its velocity.
Hybrid Contract- T&M Delivery of Phase 1, Fixed-price Delivery of Subsequent Phases. With this approach, the project is broken into multiple phases. The first phase is done on T&M basis with CAP maybe. In this phase, both the client and the vendor collaborate to identify and address domain as well as technical unknowns. By the end of the T&M phase, the project is expected to have set on a predictable course so that the vendor can price out the rest of the project with reasonable confidence.
Fixed-rate per Unit of Work Contract. This approach requires the vendor to have a stable team that has a well established velocity and also familiar with the technology and domain. The contract is awarded based on an expected rate of work produced per iteration at a fixed cost. The unit of work can be in story points or function points. This would be the nirvana of agile contracting. This could transform software development service into a "Service on Demand."
There are variations within each of these contract framework. I would be interested to hear from others on this topic. Drop me a few lines.