Fixed price contracts with startups

**dynamicsaxcontractor** · 3 June 2011, 13:00

Originally posted by borstein View Post

How do you all feel about contracting work for startups, especially fixed-price for a piece of work (as opposed to day rate)? I'm doing a 15 day piece of work, except that it's fixed budget, so I have to finish the work whether it takes 15 or 20 days, and no extra money for the extra work. And of course their estimate of time taken for the work is proving to be an underestimate (there wasn't enough info given for me to moderate that estimate). *Plus*, the effective day rate even if it did only take 15 days isn't very good.

There's wasn't anything better on my plate at the time, so I took this.

I suppose next time I should either get a proper description of the work if I'm doing fixed price, or just get a guaranteed day rate.

How do you guys feel about this sort of setup? Would you just avoid it at all costs?

I would def do fixed priced pieces of work, that gives you the ultimate flexibility in doing it your way. But you need to be really careful so you dont tie yourself in to do unrealistic deliverables. Also, remember to add your premium for doing fixed price as its more risk for you.

**Wanderer** · 3 June 2011, 18:12

Originally posted by borstein View Post

I'm doing a 15 day piece of work, except that it's fixed budget, so I have to finish the work whether it takes 15 or 20 days, and no extra money for the extra work.

I had some builders doing some fixed price work for me and that was a real eye opener. They didn't scope the work very well, "don't worry about that" was what their salesman kept saying. Oooh, that was a big mistake on my part and a big win on their part. The guys would try to do the minimum they could get away with and everything else was an "extra". Lots of attempts at doing the big upsell halfway through the job and a lot of hidden costs. Get the guys on site and doing the work then go and rip it to get whatever extras you can out of the deal seemed to be their business model. Little things that the salesman laughed at when I forced him to write them into the spec later turned out to be very significant points. Some quite heated discussions with them at times but we got there in the end.

I won some battles, they won some battles but in the end I learned a lot about their way of doing business. Number 1 is that you're going to need a thick skin, stay calm and businesslike, number 2 is that people will deliberately spec the job out vaguely and set the contract up to fail in their favour so they can go for the upsell/get something for nothing.

Entering into vague contracts with a view to the upsell isn't my style (not implying it's yours either!) so from the outset, I want to have the work accurately scoped out and and a clear deliverable set. You also have to know what the risks and dependencies are and have a plan for dealing with it if (when!) things go wrong. If it's a difficult one to scope then you're gonna be wanting a day rate for it.

If you've taken a job on and it's going to take you twice what you estimated because of scope creep or dependencies that the client should have told you about, just go back to the client and renegotiate the contract. Point out what progress you have made, how the scope of the deliverable has changed and how there were dependencies that you weren't made aware of that prevent you delivering. Point out that things are going well, you're going to finish the job with a good result but you're not doing it for the original price as it doesn't make business sense.

Good luck!