Mohamed HassanProject Management Consultant, Author and Speaker| LIFELONGKuwait, Kuwait
Working in time and material contracts is suitable for many types of work like Project Management Consulting. But, it may include ethical problems because while the customers are looking for value delivery, some consulting firms may look at how many hours they must spend to achieve the target profit.
So I think it is more ethical if the project management consulting contracts become based on the agreed values between the customer and PM Consultant rather than how many hours they spend.
Are you agree with this? And if you agree, how can they define the values? And what can we do with the customer who needs to see the consultants physically on the site even if they have nothing to do? Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
Contracts between professionals has to be based on trust and respect. If the customer does not trust the time charged by the consultant how can he trust the deliverable? If the customer micro-manages the consultant, why does he need the consultant?
You seem to differentiate between effort and value - are they not the same in a respectful and trusting contract?
A contract based on "agreed value" is essentially a lump sum (firm price [effort]) contract. That can only happen if the scope of the effort required to achieve the value is fully defined which is rare in a professional contract. An attempt at doing that typically results in change orders as the need and effort evolve.
One form contract is no more 'ethical' than another. Its the relationship and commitment (trust and respect) that defines the ethics.
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1 reply by Mohamed Hassan
Nov 04, 2022 11:53 AM
Mohamed Hassan
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Thanks, Peter
I like your comment, especially your last sentence
Yes, there is no contract more ethical than other, it is about trust and respect
I have found that many customers are very much opposed to T&M type contracts because they assume all the risk, just like contractors don't like firm fixed price for the same reason. That holds true regardless of their trust in the ethics of the other party.
For that reason, contracts with escalation clauses and/or incentives are often preferred. I don't agree that those require knowing everything about the deliverable up front. A "commitment level estimate" by the contractor may be developed which is (hopefully) better than a ROM but doesn't require a complete statement of work which requires a significant investment in time without a guarantee of getting the job.
The risk in those estimates is that the sales department may be overly optimistic in their estimate to get the job, and then engineering has to live with it even though it didn't consider some significant parts of the work required.
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1 reply by Mohamed Hassan
Nov 04, 2022 11:58 AM
Mohamed Hassan
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Thanks, Kieth, for sharing your thoughts
You touched on critical points, like how we can decide about the expected value without giving a lot of effort upfront with the customer without grantee the job, and I'm not sure if we charge the customer for this effort he will pay or not.
Second, the issue with the salespeople who want to close the deal may promise the customer a value that we can't achieve.
Thank you again
Regardless of the contract type, it is better if you can establish shared goals to create alignment between buyers and sellers. Even with a pure T&M contract, unless the seller doesn't care about customer satisfaction, the potential for future business and the ability to use a customer as a reference, they would be inclined to meet the customer's objectives while achieving their profitability ones.
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Mohamed
In the consulting firm I work with, we do bill based on hourly basis BUT in ur contracts, we agree with the client on an upset maximum that can be billed monthly. This upset maximum defines the boarders within which we work.
RK
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1 reply by Mohamed Hassan
Nov 04, 2022 12:09 PM
Mohamed Hassan
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Dear Rami,
Thanks for sharing your experience, this is like T&M with a cost ceiling, which reduces the risk to the customer, based on my understanding still, there is no agreement on the value that the customer expected from this job, but I think your customer will not pay monthly unless he gets value otherwise the customer stop the work.
Saving Changes...
Sergio Luis ConteHelping to create solutions for everyone| Worldwide based OrganizationsBuenos Aires, Argentina
I fully disagree about it is an item related with something ethical. At the end, and it is what I am doing from years, if the customer who pays for time and material work do not understand what you demostrate with results and said it is confortable with saying people working in "hour wall" mode then you have to put it clear with consultants and follow that way of working. That´s all. People in the place of your customer always have something to do. The consultant firm is in charge to find that. In fact if the consultant firm trying consultants in methods like Power Base Selling or LAMP then can find new business oportunities. Saving Changes...
I've worked on and managed enough T&M contracts to say there is nothing wrong with billing on an hourly or per diem basis. The rates are defined to include profit. For example, if the per diem rate gives the supplier 5% profit, it won't matter if you work one day or 30 days: you will be generating 5% profit every day. (Make sure you include indirect and overhead costs in your rate calculations.)
As the client, you are responsible for managing the value created by the T&M contracted staff. Seeing the contractors on-site has nothing to do about value generation and everything to do with validating contract costs. Saving Changes...
Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
Any decision can become an ethical issue, which often means a conflict between 2 values (be respectful or honest) or a violation of one or more values (perceived unfairness).
In taking a certain path, are we fair, honest, respectful, acting responsibly etc? Depends on our sensitivity for these values. That is why awareness of and prudence about ethics (or empathy) is part of a leader's attributes.
For contracts, they can mitigate the potential for ethical issues by providing - in their Ts&Cs mostly - behavioral standards, being clear and unambiguous about purpose, scope and processes (why, what and how) and dispute/conflict resolution measures (and the worst is go to court).
There should be no doubt that primary goals of a contract differ for seller (get money) and buyer (get a product). A partnering view, a win-win behavior will consider the goals and constraints of the other party too. Saving Changes...
Mohamed HassanProject Management Consultant, Author and Speaker| LIFELONGKuwait, Kuwait
Nov 02, 2022 9:46 AM
Replying to Peter Rapin
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Contracts between professionals has to be based on trust and respect. If the customer does not trust the time charged by the consultant how can he trust the deliverable? If the customer micro-manages the consultant, why does he need the consultant?
You seem to differentiate between effort and value - are they not the same in a respectful and trusting contract?
A contract based on "agreed value" is essentially a lump sum (firm price [effort]) contract. That can only happen if the scope of the effort required to achieve the value is fully defined which is rare in a professional contract. An attempt at doing that typically results in change orders as the need and effort evolve.
One form contract is no more 'ethical' than another. Its the relationship and commitment (trust and respect) that defines the ethics.
Thanks, Peter
I like your comment, especially your last sentence
Yes, there is no contract more ethical than other, it is about trust and respect Saving Changes...
Mohamed HassanProject Management Consultant, Author and Speaker| LIFELONGKuwait, Kuwait
Nov 02, 2022 10:42 AM
Replying to Keith Novak
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I have found that many customers are very much opposed to T&M type contracts because they assume all the risk, just like contractors don't like firm fixed price for the same reason. That holds true regardless of their trust in the ethics of the other party.
For that reason, contracts with escalation clauses and/or incentives are often preferred. I don't agree that those require knowing everything about the deliverable up front. A "commitment level estimate" by the contractor may be developed which is (hopefully) better than a ROM but doesn't require a complete statement of work which requires a significant investment in time without a guarantee of getting the job.
The risk in those estimates is that the sales department may be overly optimistic in their estimate to get the job, and then engineering has to live with it even though it didn't consider some significant parts of the work required.
Thanks, Kieth, for sharing your thoughts
You touched on critical points, like how we can decide about the expected value without giving a lot of effort upfront with the customer without grantee the job, and I'm not sure if we charge the customer for this effort he will pay or not.
Second, the issue with the salespeople who want to close the deal may promise the customer a value that we can't achieve.
Thank you again Saving Changes...
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