Fixed package or managed contract: what are the differences and benefits?
Your goal is to develop an IT product: a web application, mobile application or software. And you have chosen to subcontract this project to a DSP (Digital Service Provider).
You’ll probably be wondering what type of contract to put in place to secure the relationship between you and your DSP. Two models exist: the managed contract and the fixed price package.
The question is: how to choose between these two models and ensure that you are making the right choice for the development of your web project?
Managed contracts and fixed-price contracts both have their advantages and disadvantages.
What is a fixed price contract?
A fixed-price contract involves a DSP performing the IT service for a specific period of time and at a fixed price.
Example: By September 1, 2021, the software will be developed and put into production for an amount of 70,000 euros.
The DSP therefore has an obligation to deliver a pre-determined result. The result in this case is: develop and launch the product requested by the customer by September 1, 2021. The DSP will therefore undertake a commitment to deliver the final product on the date indicated using whatever means it has at its disposal.
A project under a fixed price contract therefore entails:
- A fixed budget.
- Fixed parameters framing the product to be developed.
- A fixed final delivery date.
Obviously, in this case it is the DSP that bears the burden of realizing the project until it is properly delivered to end users. Late delivery penalties may be provided for in the contract if the DSP does not respect the delivery deadline.
What to do in the event of requests outside the initial scope?
If, as the principal, you ask the DSP to integrate requests that do not fall within the initially defined parameters and scope, then you will usually have to negotiate with the DSP and pay for a new budget, in order for them to realize these new requests. This ultimately produces one or more additions to the original quoted price.
Establish a contract with enough elements for your project
One of the essential conditions for a fixed-price contract to be advantageous for both parties is that the DSP must firmly ensure that it has all the data necessary to produce the requested product. The DSP must demand from its client that the latter send it the most exhaustive collection possible of the elements required to carry out its mission.
Otherwise, if the elements provided are not sufficient to cover the entire assignment and ensure its success, then the DSP must refuse to engage – at least when working under this type of contract. In the event that the client does not have or cannot yet provide all the elements needed for the project, then a managed contract “per charge” would be the most adequate.
Once the contract and required assets for its realization are accepted by both parties, the DSP in charge of the project will be responsible for appointing a project owner, project manager and main point of contact between the client and the DSP. Their role will be to manage and respond to all of the questions relating to the progress and the realization of the IT project.
They will have several working options: remotely from the DSP’s premises, from home (teleworking) or at the client’s premises. This last option is a very good idea, especially at the beginning of a project’s lifespan. It will help frame things in their proper context and direction, and facilitate a live exchange of information.
What is a managed contract (time and materials)?
A managed or self-service contract means that the DSP will bill the customer on the basis of the time spent working on their project. This is the method most widely used by DSPs. Small and medium sized companies also generally work using this mode.
A daily rate is defined upstream between the two parties and resources (consultants, project managers, developers, etc.) are delegated to work on the client’s project.
Example: 5 Symfony developers are delegated to a company that requires them to strengthen its technical team and assets. The assigned developers will work on the overhaul of the brand’s e-commerce site. Team start date: as soon as possible. Duration of engagement: 6 months, renewable.
Managed contracts are also sometimes called technical assistance.
A project under a managed contract therefore entails:
- A start date (the launch).
- A rough estimate of the time allocated to the project.
- Invoicing by time spent (with an average daily rate).
- Provision of at least one resource (a consultant) available to the client to carry out the assignment.
The choice to turn to a managed contract is highly advantageous when you do not yet know precisely what to expect from a project. It can be interesting and useful to nevertheless provide the DSP with as many specifications as possible in order to better guide them on what you expect. However, the specifications do not need to be as precise and specific as what is required in a fixed price contract.
In the case of a contract set up using this system, the DSP has an obligation of means. Obviously, this does not mean that a customer can have no demands or say on the result to be obtained. However, no specific and fixed result is established at the outset.
In the majority of cases, the DSP’s representative consultant will work directly at the client’s premises, as if they were part of the client’s company. This is followed by the possibility of moving towards alternative working methods widely practiced these days: teleworking from home or from the premises of the DSP.
What are the advantages and disadvantages of managed and fixed contracts?
We’ll answer this question using a table that lays out the pros, cons and best contexts for adopting these two types of contract.
|Managed Development||Fixed – price |
|+||– Great flexibility. |
– Have experts in web, mobile and software development available.
– Decrease in the relative pressure of moving beyond the original scope of the pro- ject.
– Obligation of means: the DSP is responsible for providing all the means necessary for the ac- complishment of the mission.
– No delivery deadline included in the contract.
|– Obligation of results: the majori-ty of the risk weighs on the DSP.|
– The budget is more tightly cont-rolled and adhered to.
|–||– Delays and unforeseen events/obstacles impact the cu-stomer and are not covered by the DSP.||– Drafting of detailed specifica- tions.|
– Developments are restricted to the initial specifications (making it difficult to change your mind along the way, without paying a supplement).
– Relatively higher cost, because the DSP takes the most risk.
– Financially risky for the DSP in the case of a large and complex project.
– Pressure on the project team facing a delivery deadline.
– If the requested functionalities are outside the initially defined scope, they are the responsibility of the customer.
|Best for:||– Complex or atypical projects.|
– Projects with specifications that will evolve, are not precise and not very well defined.
| – Projects comprising fixed specifications and which will change little or not at all over time.|
– Smaller projects.
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