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, 2025
- Blog
- Agile Contracts
- Contract Disputes
- Dispute Prevention
- IPA Model
- SLA
- T&M Contracts
- US Contracts
Agile Contract Dispute Prevention [US Examples]
“We can’t see the deliverables.” “I’m afraid we’ll go over budget.” These are common worries in Agile contracts. Because Agile development proceeds with the premise of specification changes, traditional IPA model contracts alone often fail to prevent disputes due to misaligned expectations between the client and developer. This article explains practical contract techniques based on US government examples and 4 specific actions to avoid disputes, addressing the “uncertainty” unique to Agile. You will learn how both clients and developers can proceed with projects with peace of mind.
What are the Challenges of Agile Contracts? US Government Examples
【Conclusion of this Section】
The challenge of Agile contracts lies in the uncertainty born from flexibility (the Agile Paradox). Because specs are undetermined, client and developer expectations easily misalign. The US government addresses this by using “T&M Contracts” and detailed “SLAs” that allow for task review based on progress.
The value of Agile development is its ability to respond quickly to change. However, this very flexibility creates the challenge of contractual uncertainty. In the United States, contract models that prevent disputes are being implemented, starting from the government procurement stage, to address this issue.
For example, T&M (Time and Material) and IDIQ contracts are common in the US. These contracts allow for orders to be placed before requirements are finalized. Tasks and costs can be flexibly reviewed as progress is made. As a result, wasted investment is reduced, and a structure resilient to change is built.
Figure: Selecting a contract model based on project uncertainty
Furthermore, to ensure quality, SLAs (Service Level Agreements) are defined in detail. For example: “Critical bugs will be fixed within forty-eight hours.” By aligning expectations monthly, trust is maintained.
Why Isn’t the IPA Model Contract Enough?
【Conclusion of this Section】
The IPA model contract serves as a guideline, but it often lacks specific measures for the “uncertainty” unique to Agile. Japanese contracts tend to be rigid about scope changes and ambiguous in defining quality, making them insufficient for avoiding disputes in practice.
Agile’s uncertainty creates risks for both the client and the developer. The client faces “anxiety about an unseen exit,” while the developer faces “the risk of being jerked around by requirement changes.” If this structural problem isn’t solved, the project is likely to fail.
Japan’s IPA model contract is one guideline. However, deeper ingenuity is required to avoid disputes in practice. In fact, there are the following differences between the US and Japanese approaches.
▼ US Characteristics
- Contract Flexibility: Scope and budget are reviewed monthly via T&M or IDIQ contracts.
- Quality Assurance: Quality is objectively managed with SLAs defining specific metrics.
- Dispute Resolution Lead: The legal department leads, aiming for early resolution to avoid stopping business.
▼ Japanese Characteristics
- Contract Flexibility: Mainly “quasi-mandate” (Jun-inin) contracts, but scope change procedures are often rigid.
- Quality Assurance: The scope of “duty of care” (Zenkan Chuui Gimu) is ambiguous, leading to conflicts over quality definitions.
- Dispute Resolution Lead: Lawyers often get involved only after the problem becomes serious.
Four Specific Actions to Avoid Agile Contract Disputes
【Conclusion of this Section】
To avoid disputes, mechanisms that increase contract flexibility and process transparency are crucial. Specifically, four actions are effective: “contract renewal per sprint,” “clear mid-term cancellation rules,” “visualizing process reliability,” and “real-time sharing of work logs.”
So, what specific mechanisms should be incorporated into the contract and operations? Here, we propose four methods to structurally reduce dispute risk.
① Contract Renewal Per Sprint
First, divide development into “sprints” of one to four weeks. Review the deliverables at the end of each sprint. Based on the results, the client decides whether to continue to the next sprint. This minimizes investment risk.
② Clarify Settlement Rules for Mid-Term Cancellation
Next, prepare for the possibility of the project being canceled midway. Decide on settlement criteria at the beginning of the contract, such as “how much will be paid for what level of completion.” This clarifies the exit strategy and increases mutual understanding.
③ Visualize Process “Reliability”
Visualizing process reliability is also effective. For example, quantify and share metrics like the development team’s response speed and their rate of accommodation to specification changes. Also, visualize the impact of challenges on the client’s side. This fosters a sense of unity in the team and ensures psychological safety.
【Expert’s Comment】
From a legal perspective, keeping records is extremely important. Work logs, in particular, should be “understandable by anyone.” In Agile, the agreement process for specification changes is the most common point of contention. Objective records become powerful evidence to prove your company’s proper conduct.
④ Share Work Logs and Deliverables in Real Time
Finally, create a system to share work logs and deliverables in real time. Provide the client with access to task boards and version control tools. This allows for the early detection and correction of misalignments, achieving structural transparency.
It is most important to integrate these mechanisms into daily operational processes. We recommend starting with a short-term contract and building up successful experiences.
Question: What is the most common cause of disputes in Agile contracts?
Answer: The conclusion is “misaligned expectations regarding specification changes and cost burdens.” Agile presupposes change, but if the scope and settlement rules for those changes are unclear, it leads to disputes. Building consensus and keeping records on a sprint-by-sprint basis is crucial.
Question: What is a T&M (Time & Material) contract?
Answer: The conclusion is “a contract type where payment is based on work hours and actual costs (man-hours).” It is widely used in the US and is suitable for Agile development where specifications are not fixed. However, setting a budget cap and managing progress are essential to prevent costs from becoming uncontrolled.
Question: Can the IPA model contract be used for Agile development?
Answer: The conclusion is “it can be used, but customization is necessary.” The IPA model recommends a “quasi-mandate” type, but it may not fully address practical dispute risks unless specific clauses for Agile’s flexible change process and mid-term cancellation settlements are added.
Question: When is the best time to consult a lawyer for Agile development?
Answer: The conclusion is “before signing the contract.” Consulting during the definition of scope, settlement rules, and SLA (quality assurance) is most effective for dispute prevention. Even after the project starts, consulting when building the spec change agreement process can minimize risks.
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