[lliamander]

I'm curious, did your contractors host regular demos, sprint retrospectives, etc.? If so, was it clear early on that the results were going to be substandard, or was it a surprise fairly late into the process?

I'm not going to debate about whether they were doing "true Agile", but it seems like even without settling upfront costs it would still be possible to control risks by tracking value added vs. cost on a sprint-to-sprint basis. Hopefully it should be evident early on if the project isn't worth it[1].

Of course, this requires that the contractors be able to deliver value incrementally, which might not be possible in all projects. In which case, upfront cost estimates (and more thorough planning) will probably be necessary.

[1]In fact, this is exactly why Zed Shaw says he uses Scrum on risky projects(http://zedshaw.com/archive/the-c2i2-hypothesis/)