Monday, December 28, 2015

Fixed bid or Time & Material contract, which one to choose ?

The customer was known to be a tough negotiator; the partner knew it would be a long and tiring discussion going over each and every line item in the contract. They had spent almost 6 months discussing the scope, exclusions, inclusions and service level agreements. Now that the detail was out of the way, the last mountain to climb was deciding the commercial terms of engagement. Both were masters of the game and that made it an interesting setting for others to observe and learn from.

Starting point was the global RFP which had taken everyone by surprise with level of detail and articulation of expectations; none had seen such a comprehensive document clearly outlining the selection criteria and process towards the journey that would select first among equals. It was an important engagement for both customer as well as providers who had reached the penultimate stage towards closure; for the partner it was a long and hard fought battle to emerge as the better player amongst global competition.

Considering deals in the market, the contract value was not very large or the customer a big name to add as a logo; the deal was important in the goals and audacity of what it attempted to achieve. Thus interest from OEMs and partners was definitive with local and global teams from vendor organizations putting their best teams on the job to respond to the RFP and subsequent clarifications. Everyone commended the process, transparency and the professionalism shown by the team through the journey.

The solution architecture was complex yet simple in its design with integrated pieces that made up the whole. It had not been attempted before and that raised adrenalin levels akin to conquering an unscaled peak. With passing time the scope became clearer to everyone with vendors garnering global resources to stitch together the masterpiece. Tough filter criteria eliminated some of the contestants leaving behind a mix of large credible players who imbibed confidence with their brand and experience.

Between the remaining contestants two camps emerged which proposed to use Commercial-Off-the-shelf (COTS) solutions with minimal customization, or setting a foundation of COTS but with extensive customization to create comfort fit to existing processes. Both approaches created the solution demanded by the opportunity though with divergent approaches. Conventional wisdom dictated that minimal customization while a school of thought propagated adaptation to what business can use.

The two approaches demanded alternative commercial models with respective recommendations on why one is better over the other; these were fixed bid versus time and material, the first for COTS, the latter for customized solution; the company had used both approaches in the past though on smaller initiatives with mixed results, neither emerging as a preferred way of working. The current project much larger with budgets that were well-defined, thereby required a very different yardstick to arrive at any conclusion.

COTS fixed bid offered some level of certainty of outcomes, the number appeared large; it also created perception of limited flexibility by which business teams were discomforted. What if the solution delivered does not meet our requirements, what if people are unable to use it as expected, what if it did not deliver promised results ? There were many case studies on what did not work in large projects including for solutions proposed by the vendors; it thus required acceptance of associated risks.

Customized always gives the comfort with the syndrome that I know what I want and I will get it; it leads to extensible timelines and in many cases suboptimal process. Agreed that when completed it is used by everyone eventually; this methodology has been fast losing traction among savvy business and IT folks with the balance in favor of COTS and Cloud hosted for purpose apps. It may sound counterintuitive for someone attempting a project so large and complex, but there were proponents of bending the solution.

Coming back to the commercials, the customer finally decided to take the risk with a fixed bid hoping to pull it off with the bravado demonstrated by some of the team members, acknowledging that the world has moved on. They fought hard on every line item and then some wanting to create an open book costing which eventually prevailed in the interest of the marquee project. Both sides came out of the marathon negotiations feeling exhausted but with a win-win having listed out all possible risks to the project.

The project got off to a great start, did it deliver to promise ? Wait for the next year !

1 comment:

  1. Anonymous11:15 AM

    Eagerly waiting for part 2...!