Agile contracts

The key observation is that there can be a conflict between agile methodologies and traditional project based contracts.

Since most clients won't wear an infinitely open ended (by the hour) contract and most developers can't afford to iterate past the end of an agreed number of payments there needs to be some flexibility in the billing relationship.

How you codify that into a contract or set of contracts is an interesting challenge. I don't do too much freelance work these days - when I did it was either of two extremes: pre-agreed price per project or simple hourly billing.

Does anyone have any examples of agile project contracts that worked well (or didn't)?