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Development in Phases Contract

A contract model where the buyer releases funds on a monthly or quarterly cadence only after a product release is successfully completed against agreed acceptance criteria. It motivates both parties and limits the buyer's financial exposure to that time period, because unsuccessful releases are not funded.

Key Points

  • Funding is released only after each successful release that meets acceptance criteria.
  • Payments occur on a monthly or quarterly schedule aligned to iterations or releases.
  • Creates mutual incentives: the supplier delivers value and quality; the customer commits to ongoing support.
  • Caps the buyer's risk to each period since failed releases do not receive payment.

Example

An agile software program plans quarterly releases. The customer funds work one quarter at a time and pays only after the increment passes UAT and production release criteria. If the team fails to meet the criteria for a quarter, no payment is made and the next quarter is not funded.

PMP Example Question

Which contracting approach lets a buyer control spend by releasing funds monthly or quarterly only after each successful product release?

  1. Time and Materials with a not-to-exceed cap
  2. Development in Phases Contract
  3. Firm Fixed Price with progress payments
  4. Cost-Plus-Incentive-Fee

Correct Answer: B — Development in Phases contract (pay after successful release)

Explanation: This approach ties funding to completion of each release and limits the buyer's exposure to the current period; unsuccessful releases are not funded.

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