Litigation Risks and Practical Safeguards for Contractors in Agile Development (Part 5): The Most Critical Countermeasure Against Project Failure Is Early-Stage Prevention
Jul 04, 2025UP!
1. The Need for Agile and U.S. Case Examples
Agile was originally designed to address development scenarios where the waterfall model does not function well; it is not, by nature, a mechanism to prevent lawsuits.
In reality, it is common to see Agile projects fail due to incompatibility with organizational culture, the presence of manipulative product owners, or unrealistic expectations. The idea that simply adopting the IPA (Information-technology Promotion Agency) model contract for Agile development will solve these issues is dangerously simplistic.
In the United States, Agile contracts are structured to accommodate the changing needs inherent in software development. Specifically, Time and Material (T&M) contracts are appropriate when requirements are not yet fully defined, with payments based on hours worked and materials used.
There is no such thing as a contract without service level standards — Service Level Agreements (SLAs) are standard practice, defining performance metrics such as system uptime or bug response times to ensure quality. These agreements are often revised monthly (rolling amendments) to adapt to project realities, which helps avoid disputes.
Even in the U.S. federal government, Agile methodologies are adopted using frameworks like Blanket Purchase Agreements (BPAs) and Indefinite Delivery/Indefinite Quantity (IDIQ) contracts, which enable flexibility and limit risk.
Example:
In government projects such as integrated electronic welfare systems or complex medical record systems, T&M contracts reduce costs by aligning funding management with evolving requirements. SLAs ensure performance (e.g., fixing critical bugs within 48 hours, maintaining 99.9% system availability). Rolling amendments allow scope, costs, and priorities to be adjusted each month.
BPAs and IDIQs allow for task orders to be issued or stopped easily based on results, strengthening cooperation, trust, and transparency through up-to-date information.
2. The Agile Paradox
Agile enables quick adaptation to change and early delivery of value. However, its inherent uncertainty conflicts with the predictability and long-term commitments assumed by conventional contract practices.
Clients’ concerns include:
Uncertainty about what the final deliverable will look like
Fear of budget overruns
Anxiety over the lack of a clear endpoint
Developers face risks such as:
Being overwhelmed by constant requirement changes
Difficulty securing stable revenue streams
If these conflicting interests are not structurally addressed, they become strategic vulnerabilities. Organizations without effective systems for managing uncertainty and mitigating mutual risk will fall behind competitively.
The IPA model contract is inadequate as a practical dispute avoidance tool. By contrast, U.S. operational practices offer meaningful advantages, especially for public procurement, by embedding risk-mitigation mechanisms into the contracting process.
3. Practical Dispute Mitigation Mechanisms
(1) Sprint-Based Contracts / Economic Flexibility
Mechanism:
Projects are divided into short sprints (typically 1–4 weeks). At the end of each sprint, the client reviews deliverables and decides whether to continue with the next sprint.
Contribution to Competitive Advantage:
Clients can limit investment risk to each sprint, while developers can focus on short-term goals, ensuring economic flexibility.
Unlike waterfall models, which assume a fully specified upfront design, Agile accepts evolving requirements. T&M or quasi-delegation contracts are thus appropriate. The sprint-based approach minimizes rework risks and enables phased investment decisions.
(2) Clear Provisions for Interim Settlement / Structural Transparency
Mechanism:
Contracts should clearly define the settlement terms for work completed up to any cancellation or termination during the contract period.
Contribution to Competitive Advantage:
Clients gain confidence knowing payments are linked to tangible outcomes, while developers are guaranteed fair compensation.
Since requirements frequently change during Agile development, early sharing of settlement conditions and clear documentation of deliverables and progress are essential for reducing litigation risk and building trust.
(3) Visualizing Trust Scores / Psychological Safety and Structural Transparency
Mechanism:
Quantify reliability indicators — such as the development team’s response time or requirement change response rate — and share them with the client in real time. Likewise, the client’s reliability should be measured: whether they disclose necessary information, make timely decisions, and engage as part of the team.
Contribution to Competitive Advantage:
Clients benefit from objective data for decision-making. Developers gain motivation and protection, as honest, responsive behavior is made visible, creating psychological safety and transparency.
In Agile, frequent sprint reviews and stakeholder feedback loops make responsiveness and change-handling capacity critical to value delivery. Quantifying these factors visualizes trust dynamics. Equally important is showing how user inaction or hidden information affects the project — repeated undocumented warnings are not enough. Escalations should be visible to higher-level stakeholders so that blame cannot be unfairly shifted onto the vendor.
(4) Visualizing Work Logs and Deliverables / Structural Transparency
Mechanism:
Create an environment where clients can monitor project progress and interim deliverables in real time.
Contribution to Competitive Advantage:
Clients can reduce anxiety through timely progress checks. Developers gain the ability to objectively prove the validity of their work, reinforcing structural transparency.
Agile projects commonly use task boards and burndown charts for progress management and conduct sprint reviews to verify deliverables. Early-stage deliverable reviews and systematic work logs are essential for minimizing delays and cost overruns due to requirement changes. Configuration management and traceability further help maintain quality and avoid misunderstandings.
While these practices may seem obvious, problems arise when records — like Slack chats or meeting notes — remain cryptic or only understandable to insiders. This frustrates client-side investigators during disputes and complicates explanations for lawyers and courts, leading to unnecessary reliance on experts. Therefore, logs should be easy for non-technical stakeholders to interpret. Going forward, engineers should use AI tools and rule-based frameworks to maintain clear records.
Similarly, Scrum Masters or Project Managers should consult legal advisors as soon as they detect red flags, organize documentation, and secure early counterparty acknowledgment — a process aligned with U.S. practices. Acting like a professional means avoiding the trap of relying on opaque materials that only engineers understand, which often backfires.
Whether these measures are written into contracts or handled operationally is a separate issue, but at a minimum, contracts should be short-term, with explicit provisions for mid-term termination to reduce disputes structurally.
Key Takeaway:
In Agile development, the single most important safeguard against project failure and litigation risk is early-stage countermeasures. Proactive governance — embedded in both contracts and day-to-day operations — is vital to ensuring transparency, trust, and sustainable project success.
You are welcome to contact us via the Contact Form to discuss and for more information.
