I’ve taken a MEd course where there was this sort of “contract grading”. It worked very well for the timing of the course as most of the students (teachers) were in the thralls of end-of-the-year hoopla and each new exactly the amount of time they had to afford to put forth on a particular assignment, etc at that time.

I’ve also used a similar kind of grading system in senior high courses in the past. I derived my system based on Kathie Nunley’s work on layered curriculum: http://www.help4teachers.com/nutshell.htm

I think your students will appreciate this type of grading. I know I did as a student, and my students did as well!