Fixed price fixed date contracts

Fixed price project contracts are a popular way to transfer the risk of project overruns. The world of software development is no exception. If you take on a fixed price project, negotiate a fair premium for the extra risk you carry, deal with your scope and risks in your project it can be benificial to you and your customer.

My experience tells that fixed price contracts are often accompanied with a fixed date agreement. The fixed date agreement includes penalties if the project is not completed on an agreed upon date. Often a seperate premium for the fixed date part is not calculated and agreed upon. This is not smart move particularly if your projects main cost are man hours.

If you run into trouble delivering the project with the man hours originally agreed upon, you also have troubled delivering the project on time since your team is allocated. The logical reaction when confronted with this problem is to add more resources. But more resources late into a project usually makes the average productivity go down. So you end up with A choice, paying the penalties and dealing with a frustrated customer or adding more resources to make up the time and the loss in productivity.

My advice is to triple the premium for a fixed price contract if a fixed date is added. It is an economic wise decision since it will cover your costs. But more important it will also make your customer wonder whether a fixed date is that important after all.


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