Litigation Risks for Vendors in Agile Development and Practical Precautions – Part 2: Estimation Phase
Jul 01, 2025UP!
1. The Estimation Phase in Agile
In the estimation phase, communication gaps and mismatched expectations frequently arise between developers and clients. Developers often aim to communicate sincerely and technically, yet also have an incentive to win the contract, so they tend to present broad estimates. Meanwhile, clients often have only vague ideas without concrete documentation and request estimates mainly to create internal budgets, sometimes using competitive bids to drive down prices. This creates significant pitfalls.
Without sufficient buffers, budgets rarely work as planned. Scope creep—adding more and more features later—often leads to bloated projects that fail to deliver a viable MVP (Minimum Viable Product) and miss opportunities for market testing. Many projects fail from the outset because they try to include too much.
In contrast, releasing a product early helps test market fit quickly. However, being first to market does not guarantee success—often, a second mover learns from the “first penguin,” refines the strategy, and outcompetes the pioneer. For example, the rivalry between Fuller and Mercari in Japan shows how strategic follow-up can determine who ultimately prevails.
Overloading features in the hope of a big win often results in failure. Vendors must confront these conversations head-on. Vendors who treat clients merely as “customers always right” may be tempted to overpromise because it generates revenue, but this is short-sighted. Similarly, developers can ruin a product by adding excessive features. Engineers must remember that real market validation happens only after release; creating a lean prototype often provides the best chance of success.
Building a simple prototype and re-estimating costs afterward helps establish a productive team dynamic with the client. If vendors are seen only as contractors delivering a product, they lose strategic influence.
When presenting estimates, it is vital to explain story points and the reasoning behind them. Many clients later attempt to disregard the assumptions behind an estimate. Vendors should set clear conditions, obtain written confirmation from the client, and clarify that estimates are valid only within defined schedules and assumptions.
Some vendors use preliminary estimates as a marketing tactic in a competitive bid, but this can raise client expectations unrealistically and cause communication failures later. Even for small scopes, it is wise to charge something and test whether the client and vendor can work together effectively as a team. Some may worry this approach risks being legally classified as a work contract (ukeoi) rather than quasi-delegation (jun-inin), but assuming that an “agile contract” automatically means looser obligations is dangerous. It is better to test compatibility early to avoid later disputes.
2. Estimating Workloads in Agile
In reality, precise workload estimation in agile often happens after the project starts. Many clients do not provide complete materials until after the kick-off, meaning initial estimates are inherently limited. Nevertheless, in litigation, courts will examine those initial estimates and how they were communicated.
Clients often think very differently from vendors. They may expect much more work to be included within the original estimate. Therefore, it is vital to document reservations and clarifications, and avoid inflating client expectations. Choosing a vendor only because they are “cheaper” often backfires.
Managing expectation gaps is key to preventing project failures. However, assuming every engineer can explain these nuances is a mistake. Being a skilled developer and being an effective communicator are separate roles. A good team must include both.
It is common for basic design decisions to emerge only after the kick-off, requiring the development team to adjust accordingly. This creates new dependencies: the person responsible for the upstream design must communicate effectively with the product owner (PO). If they lack responsibility, the project may spiral out of control. Vendors must continuously assess whether the person making these core design decisions is reliable.
Product owners are not always cooperative. Sometimes they delegate too much and resist making decisions, or they lack the information or authority to make them. In some cases, someone without true decision-making authority acts as a pseudo product manager. This makes it crucial for vendors to manage schedules tightly and handle expectation alignment carefully.
Vendors must keep clear records in sprint and product backlogs, and in meeting notes. It is especially important to document who made each decision. Automated meeting minutes, later edited for clarity, can be lifesavers if a dispute arises.
When working in three-month increments, creating visible deliverables to support contract extensions is vital. While some defer workload estimation, early estimation helps manage the client and provides a realistic budget baseline. Story points relate to speed, so they should be tracked with actual measurements.
Early estimates should visibly show how they evolve over time, especially since many clients push for more features and longer timelines. If vendors neglect this, disputes over blame are more likely to arise later. Having documented evidence—even of your own mistakes—can protect the vendor and foster a more cooperative working relationship.
In cases where a client becomes overly demanding and makes work unsustainable, it is vital to gather enough evidence to raise the issue and escalate it to senior stakeholders to resolve tensions.
Ultimately, the belief that assembling a team of elite engineers alone guarantees smooth agile projects is an illusion. Good client communication often prevents project blow-ups more effectively than technical skill alone.
Clients sometimes exploit agile’s flexibility by frequently changing designs or specifications. Some do this unintentionally, others deliberately. Vendors should draw clear lines early. If conflict is inevitable, it is better to confront it sooner rather than later—delays often result in formal litigation becoming the only solution.
Therefore, the key is to provide the best possible early workload estimate within the limits of available information and make clear when more precise estimates will be available. Managing this timeline and clarifying expectations is critical to protecting the vendor’s position.
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