Fixed price contract

[meridian]

I think that is a good approach, i.e. a fixed price for a requirements analysis and design. Make sure you also include a test accept spec. as part of the initial phase. Then it's bomb proof.

The test accept spec. is the key to no misunderstandings.

i.e. you have very simple straightforward tests and when they run through they pay. Any changes which require a change to the Test Spec. are then extra.

I found this was the key to controlling scope.

I'd be interested to see how this was written up.

I've worked on Fixed Price before and although in theory that sounds fine (tests passed = implied acceptance = payment trigger), it usually ends up in a bunfight with the system integrator over how many tests and which ones are included in scope. If you can't define your deliverables up front, then accurately defining the tests to pass would be near impossible?

You're right though about scope creep, it makes change control even more important. Oh the fun we had arguing whether an issue was a defect or a CR, and the man hours we wasted doing so....

[WordIsBond]

The key thing to remember about fixed-price is that it shifts the majority of the risk onto the supplier.

This has been stated several times. Absolutely right.

I like fixed price jobs. For one thing, they are very hard for HMRC to drag into IR35, they probably won't even try.

And there is potential for much more profit, if you've scoped the job right, because of that risk. You are charging them for the amount of work you think it will be AND for the risk that it is more than that. I build at least a 25% premium into a fixed price job, if the client can't do it for 125% of what I think my normal hourly billing would be, I'm not interested. If I deliver on the expected schedule, I'll get a 25% bonus. If I deliver ahead of schedule, it's a bigger bonus.

They can shift the risk to you, but they should pay something for doing so. Call it overrun insurance -- don't give them overrun insurance for free. The cost of that insurance depends on the size of the job, how confident you are, etc.

[jamesbrown]

This has been stated several times. Absolutely right.

I like fixed price jobs. For one thing, they are very hard for HMRC to drag into IR35, they probably won't even try.

And there is potential for much more profit, if you've scoped the job right, because of that risk. You are charging them for the amount of work you think it will be AND for the risk that it is more than that. I build at least a 25% premium into a fixed price job, if the client can't do it for 125% of what I think my normal hourly billing would be, I'm not interested. If I deliver on the expected schedule, I'll get a 25% bonus. If I deliver ahead of schedule, it's a bigger bonus.

They can shift the risk to you, but they should pay something for doing so. Call it overrun insurance -- don't give them overrun insurance for free. The cost of that insurance depends on the size of the job, how confident you are, etc.

Absolutely agree. I know a couple of people have stated that clients love them, but suppliers should love them too! I've made some incredibly good deals on FFP work, way beyond anything I could ever get on a T&M basis. I've had very few go wrong (as in, fewer than I have fingers ). That being said, you need to take a very conservative approach with your estimates, agree the acceptance criteria, as far as possible and, above all else, you need to have a degree of mutual trust. If either party wants things to go south (e.g. client trying to get something on the cheap, rather than fixing a budget), they will. A little experience goes a long way in judging a client and negotiating a FFP (it's an art as much as a science), but you have to start somewhere, and I think the OP is on the right track.

[Gordon Ice]

Fixed Price Contract =

= A cheap way of getting a highly skilled contractor with little or no risk, and without having to deal with the usual overheads of hiring a permie.

FPC's are IMHO rarely the best way to go unless you can build in a decent risk premium above what you can command on a daily rate basis. My experience is that you'll usually find the Punter (Client) is wanting a resource on the cheap.

Personally I always avoid.

[jamesbrown]

= A cheap way of getting a highly skilled contractor with little or no risk, and without having to deal with the usual overheads of hiring a permie.

FPC's are IMHO rarely the best way to go unless you can build in a decent risk premium above what you can command on a daily rate basis. My experience is that you'll usually find the Punter (Client) is wanting a resource on the cheap.

Personally I always avoid.

I think you're confusing fixed-price with fixed-term (as in a fixed-term employment contract). Otherwise, your experience couldn't be further from my experience. The whole point is that you can, indeed, profit far more from a FFP than T&M, providing you know what you're doing, while the client benefits from an upfront costing. Generally speaking, they're also about as far away from (disguised) employment as you could possibly get (not because of the payment mechanism itself, but the type of work/arrangement that it's well suited to).

[MrMarkyMark]

Good stuff guys, very interesting, I may have some of this coming up myself.

[WordIsBond]

above all else, you need to have a degree of mutual trust.

That mutual trust is not absolutely necessary, but if you don't have it, you have to nail down every little thing in advance. But if you have it, this can work great.