Reflections and examples of agile fixed-price contracts
Miquel FebrerExecutive for Transformation Management and International Business| GFT GroupSant Cugat Del Vallès, Ct, Spain
Several clients want to have IT agile projects with fixed-price contracts. This is an obvious complex combination and I would like to understand reflections and examples of people that have a deep experience about this. I also have thoughts and experience, but not extremely successful yet! Saving Changes...
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Miquel
Having a fixed price contract for a project operating in an Agile Environment will be very restrictive and you will end up with a higher price as usually in fixed price contracts, sellers do add in a decent amount of risk contingency to protect themselves.
However, if the only option is a fixed price contract then depending on what type of project you are running and the industry you are operating in, what you can do is establish multiple fixed contracts (i.e. fixed price contracts per phase) instead of one FP contract for the whole project.
Hope this makes sense.
RK
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1 reply by Miquel Febrer
Jan 13, 2022 10:59 AM
Miquel Febrer
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Thanks, Rami. I forgot to mention that I am talking about IT projects. Yes, one option we have tried in the past if to fix-price each sprint. But this eventually became unsustainable due to the overhead and bad behavior that it caused.
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
A fixed-price contract makes sense when the scope is fully defined and the contractor can completely control the delivery process.
A fixed-price contract essentially transfer all the risk to the contractor. Typically this can only happen under two situations: 1) the contractor attaches a large "risk allowance" to the fixed price, or 2) the Owner hands over authority to the contractor (Owner has no input). I suppose a third situation could mean both.
Thus, I would think that the only way to achieve a fixed-price contract is to a) find a contractor prepared to take the risk, b) be prepared to pay a big premium, and c) minimize the Owner's right to be engaged in project delivery.
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1 reply by Miquel Febrer
Jan 13, 2022 11:03 AM
Miquel Febrer
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Thanks, Peter. Your answer makes a lot of sense, but sometimes clients do not have enough experience in Agile and they do want both: Agile and Fixed price. And of course they do not accept a high risk premium either.
Saving Changes...
Miquel FebrerExecutive for Transformation Management and International Business| GFT GroupSant Cugat Del Vallès, Ct, Spain
Jan 13, 2022 10:23 AM
Replying to Rami Kaibni
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Miquel
Having a fixed price contract for a project operating in an Agile Environment will be very restrictive and you will end up with a higher price as usually in fixed price contracts, sellers do add in a decent amount of risk contingency to protect themselves.
However, if the only option is a fixed price contract then depending on what type of project you are running and the industry you are operating in, what you can do is establish multiple fixed contracts (i.e. fixed price contracts per phase) instead of one FP contract for the whole project.
Hope this makes sense.
RK
Thanks, Rami. I forgot to mention that I am talking about IT projects. Yes, one option we have tried in the past if to fix-price each sprint. But this eventually became unsustainable due to the overhead and bad behavior that it caused. Saving Changes...
Miquel FebrerExecutive for Transformation Management and International Business| GFT GroupSant Cugat Del Vallès, Ct, Spain
Jan 13, 2022 10:27 AM
Replying to Peter Rapin
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A fixed-price contract makes sense when the scope is fully defined and the contractor can completely control the delivery process.
A fixed-price contract essentially transfer all the risk to the contractor. Typically this can only happen under two situations: 1) the contractor attaches a large "risk allowance" to the fixed price, or 2) the Owner hands over authority to the contractor (Owner has no input). I suppose a third situation could mean both.
Thus, I would think that the only way to achieve a fixed-price contract is to a) find a contractor prepared to take the risk, b) be prepared to pay a big premium, and c) minimize the Owner's right to be engaged in project delivery.
Thanks, Peter. Your answer makes a lot of sense, but sometimes clients do not have enough experience in Agile and they do want both: Agile and Fixed price. And of course they do not accept a high risk premium either.
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1 reply by Peter Rapin
Jan 13, 2022 11:18 AM
Peter Rapin
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"Have your cake and eat it to"
I suppose the next step is to try and educate the client and present a compromise solution. Maybe some sort of risk sharing arrangement - not to exceed price where you share the risk and the risk allowance, or - a partnership approach with the same objective.
Multiple fixed price contracts as scope is defined as mentioned by Rami is possible however this could create a non-competitive situation where the prices keep escalating or you lose continuity when you shop for better deals.
No easy answer here. You may want to consider a comprehensive risk analysis to see how you can avoid the pit falls and mitigate damages to achieve an acceptable level of exposure for your client.
Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Jan 13, 2022 11:03 AM
Replying to Miquel Febrer
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Thanks, Peter. Your answer makes a lot of sense, but sometimes clients do not have enough experience in Agile and they do want both: Agile and Fixed price. And of course they do not accept a high risk premium either.
"Have your cake and eat it to"
I suppose the next step is to try and educate the client and present a compromise solution. Maybe some sort of risk sharing arrangement - not to exceed price where you share the risk and the risk allowance, or - a partnership approach with the same objective.
Multiple fixed price contracts as scope is defined as mentioned by Rami is possible however this could create a non-competitive situation where the prices keep escalating or you lose continuity when you shop for better deals.
No easy answer here. You may want to consider a comprehensive risk analysis to see how you can avoid the pit falls and mitigate damages to achieve an acceptable level of exposure for your client.
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1 reply by Miquel Febrer
Jan 13, 2022 11:38 AM
Miquel Febrer
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ok thanks, Peter.
Saving Changes...
Miquel FebrerExecutive for Transformation Management and International Business| GFT GroupSant Cugat Del Vallès, Ct, Spain
Jan 13, 2022 11:18 AM
Replying to Peter Rapin
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"Have your cake and eat it to"
I suppose the next step is to try and educate the client and present a compromise solution. Maybe some sort of risk sharing arrangement - not to exceed price where you share the risk and the risk allowance, or - a partnership approach with the same objective.
Multiple fixed price contracts as scope is defined as mentioned by Rami is possible however this could create a non-competitive situation where the prices keep escalating or you lose continuity when you shop for better deals.
No easy answer here. You may want to consider a comprehensive risk analysis to see how you can avoid the pit falls and mitigate damages to achieve an acceptable level of exposure for your client.
A fixed price contract can work with adaptive delivery if the focus remains on the outcome and the team has flexibility with regards to the "what" and the "how".
Of course, a lot depends on the level of competency of the team relative to the product or service being delivered as well as the level of uncertainty present.
In the past, we've tackled this by doing fixed pricing at a per release level so that the horizon for planning is reasonably short, and usually doing the very first release on a T&M basis to give the team a chance to get a better handle on things before firm commitments get made.
Kiron
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1 reply by Miquel Febrer
Jan 13, 2022 1:16 PM
Miquel Febrer
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Thanks, Kiron. Yes, to fixed-price each release can be an option after some T&M sprints to gather knowledge.
Saving Changes...
Miquel FebrerExecutive for Transformation Management and International Business| GFT GroupSant Cugat Del Vallès, Ct, Spain
Jan 13, 2022 12:00 PM
Replying to Kiron Bondale
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Miquel -
A fixed price contract can work with adaptive delivery if the focus remains on the outcome and the team has flexibility with regards to the "what" and the "how".
Of course, a lot depends on the level of competency of the team relative to the product or service being delivered as well as the level of uncertainty present.
In the past, we've tackled this by doing fixed pricing at a per release level so that the horizon for planning is reasonably short, and usually doing the very first release on a T&M basis to give the team a chance to get a better handle on things before firm commitments get made.
Kiron
Thanks, Kiron. Yes, to fixed-price each release can be an option after some T&M sprints to gather knowledge. Saving Changes...
I agree with Rami. Kiron Also made valid points. Saving Changes...
Stéphane ParentSelf Employed / Semi-retired| Leader MakerPrince Edward Island, Canada
The default fixed price contracts are fixed price/fixed scope (FPFS). Given that scope is the one thing in adaptive approaches that is not fixed, FPFS does not make sense. What does make sense, is a contract that allows for multiple statement of works (SOW) with each SOW having a fixed scope. That would mean each SOW would be tied to a number of iterations or releases. Of course, the contract and SOW should both allow for the SOW backlog to be modifiable, understanding that lower priorities could be pushed out to a future SOW. You can then opt for your "fixed" scope SOW to be time & material or fixed price.
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1 reply by AWADALSAID TARA
Jan 14, 2022 8:36 AM
AWADALSAID TARA
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Fixed price makes sense with well clear scope and, but for agile project especially for smaller one may increase costs and also for bigger one may restrict the work.
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