NoFixed.org

The move away from fixed bid is not about removing accountability for the vendor; it is about shifting accountability away from a fixed set of features towards something ultimately more valuable - the benefits. In a fixed bid contract, the vendor is speculating to deliver the project management iron triangle; a predefined set of features, cost and timeline. In a fixed bid alternative, the client agrees to open up at least one degree of the freedom in the iron triangle and the vendor agrees to continually deliver the highest value features early and often.

Transparency is the key for all fixed bid alternatives. In traditional fixed bid projects, the team does discovery and planning upfront then comes back with a finished product...in theory. Development is a black box where clients know little about the progress of their project.

Successful non-fixed bid projects rely on transparency through frequent demonstrations and communication with clients. A client always knows where their project is and can periodically adjust direction to improve efficiency and enhance quality.

Accountability and assurance the right product is built is achieved by frequent:

• Delivery of working deliverables - In traditional fixed bids clients see very little functionality until the end of the project. Non-fixed bid incorporate periodic demonstrations. Demonstrations of working deliverables should be early and often.
• Reporting on value metrics – The delivery of some web services are focused around performance than working deliverables. With online marketing, for example, often it is more important to show traffic and conversions rather than individual elements completed that drove the results. For items where performance is the ultimate goal, transparency is best provided by frequent delivery of performance reports.
• Strategizing and prioritization – Traditional fixed bids create a rigid plan up front. Fixed bid alternatives use lean just-in-time strategic planning. The approach focuses on adequate initial planning complemented with frequent alignment discussions along the way. Without the constraints of a fixed contract, clients and the team can adjust priorities and add new ideas as they see the product evolve.

It is helpful to think of non-fixed bid as being a series of smaller time-boxed commitments. Clients see real working software and performance reports so they can continually judge if the vendor is providing enough return on investment.

Time & Materials

Time & Materials is the simplest non-fixed arrangement. The process is:

• client and vendor agree upon a billing rate
• client provides vendor with requests
• vendor tracks their time
• vendor bills client for work done and any cost of materials

A time & materials agreement work well when a set of deliverables must completed. In this model, the features and often time lines are fixed and the price is flexible. Time & material works well for smaller projects such as changes or fixes to an existing website. Standard time & materials have very few controls, there for it is not recommended to use them without additional caveats on larger projects.

Time & materials is often coupled with a control mechanism. Often the vendor will provide a rough estimate of hours with the understanding that as the project progresses if the vendor feels they need to adjust the estimate they will contact the client for approval on additional work.

Another control mechanism is not to exceed clauses. This model runs as a time & materials with a hard cost cap. It is up to the vendor to assure that adequate deliverables are produced under the not to exceed amount. Since not to exceeds have a hard cost cap, often some flexibility on final features is provided.

Fixed budget

A fixed budget project is one where the price and often timeline are fixed but the features are negotiable. In fixed budget the parties know how much it will cost, however there will likely be negotiations on which features get implemented and the time spent refining those features. Since the cost is fixed, the fixed budget model works well with companies that have set internal budgets.

Fixed budgets can be a great way to maximize project ROI. Often fixed budgets exhibit strong Pareto Principle effects where 80% percent of the benefit is derived by 20% of the work. In most fixed budgets the budget is set below what the same project would cost in a fixed bid. Therefore, focus is not on delivering all up front requirements. Focus is on working with a large set of ideas and delivering the best, most profitable ideas with the optimal amount quality. Since time is not wasted on low value features and refining features beyond optimal value, profitability is maximized.

Fixed budget retainers

In this model, a reoccurring budget is set, often on a monthly cycle. Effectively the process progresses as a series of fixed budget projects. Fixed budget retainers provide superior ROI on more advanced projects where a large number of features are anticipated during the project lifetime. Those with either a large number of upfront requirements or projects that are expected to evolve thus a significant number of requirements will be added as the project progresses.

Value driven

Value driven projects are those where compensation is based on achieving certain metrics. Value driven projects are fairly rare. They are more often seen in marketing oriented projects and metrics are set around items such as leads, site visitors, and mentions on high value websites. They are very rare in pure web development projects where there is not some measurable action to put a value around.

In theory, a value driven project enables both vendor and client to maximize ROI with managed risks. The client determines the value they are willing to pay for a result. The vendor is incentivized to find the most efficient manor to achieve the results.

Unfortunately, this does not often happen in real life. There are many issues that can derail the intent of a successful value driven relationship. Common issues that typically hinder purely value driven agreements are:

• poor means for measuring and reporting metrics
• poor understanding of value of measurements during the agreements stage or a shift in value
• changes in the client’s industry or company change the focus
• poor understanding of effort required by the vendor up front
• lack of supporting effort by client

Value driven relationships are often highly speculative. Arguments often arise when either party feels the other is not doing enough or in the proper way to adequately drive success.

While pure value driven relationships can be problematic, adding value driven components to other types of non-fixed agreements can be a good compromise. In this way, the value driven can act as a bonus for good performance.