Comments on: Are fixed-price contracts evil? http://www.crazymcphee.net/x/2009/04/09/are-fixed-price-contracts-evil/ programming idiom and methodology Tue, 24 Aug 2010 08:56:25 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Scot Mcphee http://www.crazymcphee.net/x/2009/04/09/are-fixed-price-contracts-evil/comment-page-1/#comment-121 Scot Mcphee Thu, 09 Apr 2009 20:27:49 +0000 http://www.crazymcphee.net/x/?p=319#comment-121 Eric I would go further than that. As soon as you fix the scope you're dooming the project to failure. It won't meet the actual need - just the imagined need, as it was imagined at the start of the project with no detail available to anyone. My first gig in consulting was with a hard-nosed Scottish guy, still in business. When we gave our 'Time and Materials' quote for a job and the client asked for a fixed price, he would say, "I can give you a fixed price but it will be three times the price of this quote."! The lesson I learnt was that to absorb risk in a fixed-price contract (from the consulting side) you have to have multiples of buffer, not small percentages of buffer! Eric I would go further than that. As soon as you fix the scope you’re dooming the project to failure. It won’t meet the actual need – just the imagined need, as it was imagined at the start of the project with no detail available to anyone.

My first gig in consulting was with a hard-nosed Scottish guy, still in business. When we gave our ‘Time and Materials’ quote for a job and the client asked for a fixed price, he would say, “I can give you a fixed price but it will be three times the price of this quote.”! The lesson I learnt was that to absorb risk in a fixed-price contract (from the consulting side) you have to have multiples of buffer, not small percentages of buffer!

]]> By: Eric Rizzo http://www.crazymcphee.net/x/2009/04/09/are-fixed-price-contracts-evil/comment-page-1/#comment-120 Eric Rizzo Thu, 09 Apr 2009 13:23:00 +0000 http://www.crazymcphee.net/x/?p=319#comment-120 I manager I worked for early in my career (at a "systems integrator" company, IOW a glorified consulting firm) used to say that the problem with fixed-cost/fixed-scope projects is that, by their nature, one of the parties will be ripped off. If the bid is set high enough to cover the unknowns, the client is likely paying too much for what he needs. On the other hand, if the consultant bids too low he will lose money on the deal as those unknowns steal away his time. My manager was right; there is no practical way to hit that one sweet spot, so one side or the other will be losing in the deal. I manager I worked for early in my career (at a “systems integrator” company, IOW a glorified consulting firm) used to say that the problem with fixed-cost/fixed-scope projects is that, by their nature, one of the parties will be ripped off. If the bid is set high enough to cover the unknowns, the client is likely paying too much for what he needs. On the other hand, if the consultant bids too low he will lose money on the deal as those unknowns steal away his time. My manager was right; there is no practical way to hit that one sweet spot, so one side or the other will be losing in the deal.

]]>