The Contractual Perspective
From a contractual standpoint, the whole process would generally follow the pattern shown
in Figure 6. Note that a first small contract might be issued to help define the first delivery -- part of the Elaboration phase for the first increment. As we said earlier, this would be on a cost reimbursable basis. The second CWO would cover completion of the Delivery 1 and include the technical discussion necessary for setting up Delivery 2 -- in other words, the Inception phase of the second increment. Depending on the confidence level of the parties regarding the extent or effort required for this second CWO, the payment arrangement could be either cost reimbursable or fixed price.
By the time we get to Delivery 2 (i.e., the third CWO), both the relationship between the parties and their understanding of the work should be solid enough to let them arrive at a satisfactory fixed price for the scope of work in this CWO. Specifications should include not only the amount, but also a payment schedule and end date. The acquirer should avoid imposing unreasonable time constraints so that the work can be done properly. Also, as Murray Cantor says, "Sometimes the surest way to kill a [software] project is to add more workers."
Note that in the event of a breakdown in the relationship between the acquirer and supplier, the acquirer has an option to terminate further development. If they choose to exercise it, the supplier, of course, would lose the work and the revenue. But the acquirer would also sacrifice the intrinsic knowledge the supplier has built up about the project. So both parties have an incentive to keep the relationship alive and well oiled.
As shown in Figure 6, the fourth CWO encompasses Elaboration for Delivery 3 through Inception for Delivery 4; this gives the supplier the necessary resources to work jointly with the acquirer to define the scope of Delivery 4. The final CWO covers the remaining work, including supplier obligations specified for Final Acceptance and Closure.
Figure 6: Contracting Cycle for Progressive Acquisition
2. Ibid. p.161.