When we went to tender for a new transport management system, three partners bid to implement it. Two quoted time and materials. The third offered a fixed price of four hundred and eighty thousand pounds, and the board liked that very much. A fixed price felt like risk handed to someone else.
The contract had an appendix of assumptions, sixty four of them. Procurement read them as the supplier's standard caveats, and so did I. The client will provide cleansed data in the supplier's template. Client subject matter experts will be available three days a week. Testing will take no more than two cycles. Integrations are limited to the interfaces listed. Test environments will be ready within ten working days of request.
None of those held. Our data needed months of cleaning that nobody had planned. The planners chosen as experts were also running the depots through a busy summer, and gave the project a day a week at best. Testing took four cycles, partly because the experts had not been there to shape it. We had listed seven interfaces and found eleven.
Each broken assumption became a change request priced at the partner's day rate, and each one was entirely within the contract. There were nineteen of them, worth two hundred and seventy thousand pounds. The fixed price project cost fifty six percent more than its fixed price, and nine months longer.
The partner had been honest with us. The appendix was simply the other half of the price. It described the conditions under which four hundred and eighty thousand pounds was true, and almost every condition was something we had to do. We had signed up to sixty four obligations and given none of them to anyone.
Now every assumption in a bid is turned into an obligation with a named owner on our side, and a cost, before we compare bids. The three days a week of expert time became one point six people for nine months, and that went into the business case and into the depot managers' plans. Assumptions we cannot meet are struck out and the bid repriced before signing. A register of them is reviewed at every steering meeting. When we did this on our next tender, the cheapest fixed price became the most expensive bid.
A fixed price fixes the supplier's side of the bargain. The assumptions are ours, and we had read them as theirs.
– Serguey Shinder
Top comments (0)