Fixed price ICT consulting contracts have more advantages than many decision-makers realize, combining to foster true partnership. Here are 11 considerations:
1. Partners share a stake in your success
With fixed price contracts, the goals of both parties are better aligned, laying the groundwork for partnership. Your partner commits to delivering a set result in an established timeframe for a set fee. They have “skin in the game”. It’s worth their while to use the most efficient possible people, processes and technology because that maximises their profitability. By contrast, on a time and materials contract, suppliers are paid by the clock. Their fee depends on their labour input, not its outcomes.
2. Realistic comparisons
Clients often underestimate the work (AKA “time”) required for a successful ICT project when evaluating a fixed price proposal. Frequently overlooked/undercooked aspects in this mental comparison include time for “what if” discussions, decision making, oversight, testing, change management, dependencies… In short: fixed price contracts probably offer you better value than you think, as well as reduced (but not zero) uncertainty.
3. Degree of uncertainty
A fixed price contract transfers much of the risk to your partner, a major advantage. However, contrary to what it says on the box, fixed price contracts do not offer a price that is fixed in all circumstances for all eternity without any conditions. If you, as a client, move the goalposts (e.g. scope, timeline or, sometimes, method), or hold up delivery through no fault of your partner, the price can go up. (To provide additional reassurance, the business unit that I lead, Oracle Consulting Australia and New Zealand, has developed service catalogues pre-specifying costs for common changes e.g. additional reports.)
4. Client discipline
Fixed price contracts require clients to at least attempt to articulate their desired scope and timeline – that is, to specify what it is that you’re trying to achieve and when. Even if this ends up being superseded, the discipline of going through that thought process lays the groundwork for greater project success. By contrast with…
5. “Suck it and see” shortcomings
Every coin has two sides. One of the advantages of time and material contracts for clients is that the contracts can more easily be cancelled. However, because time and materials contracts can be more easily cancelled, clients can be tempted to embark on them without enough preparation – which is a distinct disadvantage. The “suck it and see” (trial and error) school of project management seldom yields optimal results.
6. Urgency
When there’s a fixed price contract, both parties have an interest in keeping the project to schedule because there can be financial repercussions if they don’t. That brings focus and drive to the project, and means your business can start recouping its investment faster. However, at least in theory, with time and materials contracts, the slower the supplier works, the more they get paid – albeit at a cost to their reputation.
7. Beneficial challenge
Just quietly, the customer is not always right! While you know your business best, partners may be more familiar with broader best practice and have experience in the specific type of transformation you’re planning. If you’re heading in the wrong direction, it’s the consultant’s job to respectfully challenge you. That’s never easy. However, it’s easier for a consultant to speak up when they’re being judged on a result rather than a timesheet, and hired for their expert advice not just their time.
8. Alternative solutions
Not every problem needs a technological solution. Also, sometimes the “best” technical solution is too complex for an organisation to manage long-term. Fixed-price contracts are more likely to put business problem solving at the core, encouraging practical, workable solutions that deliver real business outcomes.
9. Bandwidth
In a time and materials contract, your management team will need to not only stay on top of their business-as-usual but manage a whole new team of people with their own established norms and processes. That project management is a lot of work, and even more if you throw a few different time zones into the mix to cater for offshore team members. Some very large customers are better able to accommodate the additional work, and experienced enough to do it competently – however, in my experience, many struggle. It’s true that fixed price contracts also require the client’s active involvement, however the project management workload is lighter.
10. Never say never
While I favour fixed price contracts over time and materials for our advisory and implementation services at Oracle Consulting in Australia and New Zealand, there are exceptions to every rule. Sometimes a time-based contract is the stepping stone a client business needs to develop trust and confidence. Sometimes, it’s the only way they can get the funding approved internally. And sometimes, consultants are brought in to provide small amounts of high-level specialist expertise to an existing in-flight project. In these cases, time and materials can make sense.
11. Partnership motivation
Unsurprisingly, the best people want to be hired for their heads and hearts, not just their hands, and gravitate towards businesses that work towards true partnership with their clients. Similarly, assuming they’re confident in their organisation’s capability to deliver, the leaders of partner organisations would rather be accountable for results than be a commodity-style-supplier of human labour (AKA “body shop”) with less control over the ultimate result, or lack thereof. While financial measures are vital, it’s incredibly rewarding to see clients enjoy the business outcomes your teams have enabled – in partnership.