For software development contracts (mostly Agile Software Development Projects) you can use the remuneration model "Money for Nothing, Change for Free" with two key characteristics:

The first is "Change for Free": This remuneration model starts with the same basic conditions as a fixed-price project; a set of features (compare product backlog, specification sheet) is estimated in terms of effort. For these Agile Projects the Product Owner belongs to the client organization, he manages the Product Backlog. It is common that NEW features/backlog items (requirements) can be added during the course of the project. A simple rule applies here: If a newly added feature shall be implemented, then the effort estimate is established (e.g. story points or working time); because the fixed-price is based on a fixed effort estimate (amount of story points or working time), the Product Owner has to remove a number of backlog items that equal the number of newly added story points (or working time, respectively). That's the meaning of "Change for Free".

The second principle is "Money for Nothing": Typically, a backlog is processed in such a way that the most important features (with the highest value for the user) are implemented at the beginning. Towards the end of the project the backlog contains features with lesser value to the customer. The contracts described here now allow a project to be terminated even before the defined budget has been implemented, if the product developed up to that point already meets the client's objectives. However, the contractor will still be paid a share of the remaining order/cost volume - which takes into account the fact that the developers employed cannot be moved to another/new project at short notice. In this case the contractor receives "money for nothing".

The remuneration model "Money for Nothing, Change for Free" is usually found in agile software development contracts, but in principle it can also be applied to software development contracts that are not based on agile development methods.


The author is a manager in the software industry with international expertise: Authorized officer at one of the large consulting firms - Responsible for setting up an IT development center at the Bangalore offshore location - Director M&A at a software company in Berlin.