Agility in Fixed-Price Projects

Commonly Used IT Development Contract Categories

Following are some of the contracts engaged in IT development projects:

• Fixed-price contracts: This type of contract involves a fixed total price for a well-defined product. A fixed-price contract is a contract in which the amount of payment does not depend on the amount of resources or time expended. Such a scheme is often used by military and government contractors to put the risk on the side of the vendor and control costs. Scope, features, planning, and timing are fixed in this type of contract.
• Cost-reimbursable contracts: This category of product involves payment to the seller for the seller’s actual cost, plus a fee typically representing seller profit. Cost plus fee (CPF), cost plus fixed fee (CPFF), and cost plus incentive fee (CPIF) are variations of the cost-reimbursable contract.
• Time and material contracts: These contracts are a hybrid of fixed-price and cost-reimbursable contracts. This contract can grow in contract value like cost-reimbursable contracts; conversely, it resembles fixed-price contracts in that the buyer and seller fix the rates for resources upfront.

Why Do Customers Often Prefer Fixed-Price Contracts?

• If projects are awarded after a multi-provider bidding process, the customer knows the scope, timing, and price required to choose …