From the desk of Peggy – Unpacking Contracts: Fixed-Bid or Time and Materials
Peggy Fasano, COO, Boulder iQ
We have many clients who come in asking if we do fixed-bid or time and materials (T&M) for our proposals. Now the simple “consulting” answer is that it depends. Fixed bid and T&M have a time and place where they work best.
Fixed-bid contracts are exactly like they sound, the price is fixed. This provides easy budgeting for the client and works well for projects that have a well-defined process with little uncertainty. When there are projects that are more evolutionary and have more unknowns, not having any room for flexibility can be challenging for both the consulting team and the client. With a fixed-bid contract, I have seen projects where the quality of the work product was subpar because the consulting team underbid and struggled to break even on the contract. To de-risk this happening, consulting companies typically pad the fixed bid to provide a buffer for any unforeseen risks that may happen in more nebulous projects. Here at Boulder iQ, we have some projects that are fixed-bid since they follow a standard process and rarely have unknown factors. These projects include our sterilization validations, writing 510(k)s, and implementing Quality Management Systems.
For more enigmatic projects, we typically propose time and materials. In this form, the client pays for the exact cost of the work based on an hourly labor rate and any material costs. These projects will still follow a plan and a scope with estimated deadlines, but there is more flexibility to change or adapt the scope of the project as more information presents itself. With T&M, the client has full transparency of the service they are getting and understand exactly what they are paying. Status updates are even more important in this category, so the consulting team and client are aligned with the steps and goals of the project. An issue clients face with T&M is the final cost of the project is unknown and could potentially change significantly, which can be hard for budgeting.
Here at Boulder iQ, we typically provide an estimate for the T&M project and stay within a percentage of this project. If there are large scope changes that will significantly change the cost, that is a conversation that is had as soon as possible. Scope creep can be very easy in T&M projects, so it is important to always keep the objective of the project in mind. We have worked with startups that tend to start adding more features once the development process has started for a product. We take it as part of our job to remind the clients of their goal, which is typically to have a minimum viable product out on the market as efficiently as possible. That type of conversation usually ends in features or add-ons being pushed to the second generation of the product once the company is post-revenue.
In conclusion, there are times when a fixed-bid contract is best and times when a T&M contract is best. When you are evaluating a project, think about flexibility, risks, unknowns, quality, and budgeting and how you would weigh each of these before deciding which is the better method.