Choosing the right contract model is a factor that directly influences the effectiveness of cooperation and project success.
JazzTeam has been focusing on Time&Material since its foundation.
Many years of experience and well-structured processes allow us to avoid risks associated with this type of contract and take full advantage of its benefits.
The type of the most effective cooperation model depends on the peculiarities of the project and specifics of the contractor’s and customer’s business processes. Undoubtedly, modern software development is shifting towards Agile processes and T&M. However, there are a large number of companies for which it is psychologically easier to work using the Fixed Price model. The business culture of contractors and customers must coincide. It is extremely important.
Our company can adapt its Agile processes to the specifics of the customer company, regardless of your past experience.
The Fixed Price model can be more effective for short-term projects with a limited budget and a complete, fixed list of requirements, and the Time&Material model is suitable for long-term and large-scale projects that develop a product with a large number of business functions.
In practice, much depends on the established management culture adopted by the customer and the contractor, as well as on how professionally the strengths of each of the approaches are used.
For example, short research activities for startups are often performed under T&M contracts, despite specific expected results. This allows contractors to focus on research without the need to specify all possible risks in the contract. This reduces the ultimate cost of research.
Time&Material combines perfectly with a preliminary work assessment, specific deadlines and budgets.
At each T&M project, we estimate development phases and individual tasks, always focus on the established deadlines and budgets. At the same time, the customer does not pay for all kinds of risks, as is the case with the Fixed Price model, and is fully informed about the real state of affairs.
In the following chapters, we will explain in detail the specifics of choosing the cooperation model that is most effective for your project, as well as help you make a decision.
Fixed Price (FP) and Time&Material (T&M) are popular contract models used on software development projects.
Each of them implies certain terms of cooperation and interaction between the contractor and the customer. Let’s consider the peculiar features and differences of these models.
|Budget||The budget is approved before the start of development and remains unchanged. The model assumes an assessment of the necessary works on the project based on the requirements specification and takes into account possible risks. The implementation of the features not initially included in the specification is subject to extra payment. Ideal for projects where the development budget is fixed, for example, for public sector enterprises.||The budget may change as the product is being developed and new business requirements are received. The total cost of development is estimated based on the labor costs of the specific specialists involved in the project. Great for startups without a complete vision of the necessary functionality.|
|Project completion timeframe and scope of work||Pre-determined scope of work and fixed project delivery date. Suitable for companies that can draw up the requirements specification in full and can expect the delivery of the product with all the specified functions by the predetermined delivery date.||The scope of work and the project completion deadline may vary depending on the customer’s needs and the contractor’s capabilities . An excellent option for customers who want to test their hypotheses on the MVP (minimum viable product) and make a decision to continue development after making sure that the product is in demand.|
|Changes in requirements||Once the terms of the contract are agreed, changes to the requirements cannot be made promptly. The introduction of functions not specified in the initial documentation into the product is agreed additionally, which takes time. Suitable for organizations with long-term business planning, a stable market and a conservative management model.||It is possible and quite easy to make changes to the requirements while working on the project. When the need arises, priorities and plans change quickly. Ideal for dynamically changing products.|
|Customer involvement||Low degree of customer involvement in the development process. Active participation of the customer in the project is necessary at the stages of requirements elaboration and acceptance. Suitable for companies without a functioning IT department and appropriate infrastructure that want to get a result taking into account all their wishes and without going into details of development and processes.||High involvement. The customer is fully involved in the development processes, has access to the project’s infrastructure and task management systems, and constantly participates in meetings with the team. The contractor communicates with the customer to clarify and update the requirements. Ideal for companies that would like to control the cost of further product support and participate in the organization of project logistics.
Many customers insist on the implementation of certain practices (Test Automation, CI/CD), want to conduct development independently in the future, as well as manage the project infrastructure.
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The Fixed Price model involves a number of serious risks that may not be obvious to the customer at the start of cooperation.
Fixed Price often involves overestimation, and therefore requires additional costs. When concluding a long-term contract, the contractor takes into account all possible risks and includes them into the budget, so the cost of product development can be overestimated several times. The actual budget spent and the entire set of risks under consideration remain opaque for the customer.
The product development process on Fixed Price projects can remain a "black box" for the customer for a long time. Especially, if the customer works with a service provider for the first time. Only at the final stages of the project you can be sure whether the contractor applied the most important approaches that are necessary to ensure stable operation and further development of the product — Continuous Integration & Continuous Delivery (CI/CD), automated testing. Even if the conditions for the mandatory application of these practices are specified in the requirements specification, the risk of their incomplete implementation still remains. For example, the technical documentation may not cover critical processes and approaches, making it difficult to maintain and scale up the product for you. In view of these considerations, your risks increase in case of improper performance of services. It is easier to reconsider the cooperation after several unsuccessful iterations than after the end of a six-month job, when your sales department already insists on the introduction and real use of the product.
On Fixed Price projects, it can be difficult for the customer to manage the quality of the product under development. This type of contract presupposes that testing is one of the last stages of the project life cycle, which is often given too little time. Therefore, when working based on the Fixed Price model, contractors can neglect the product quality: they can skip automation of the necessary amount of test cases and conduction of regression testing, as well as save money on the implementation of best practices. As a result of this approach, product quality is one of the variables that is very difficult for the customer to influence in the future. On the other hand, there is a risk that product quality requirements are incorrectly determined at the very beginning. For example, if the customer company does not have an experienced CTO, the business owner (especially the one who does not have knowledge in the IT field) has to formulate the requirements independently. He or she may consider this task difficult due to the lack of experience and knowledge about the nuances and best practices of software development. Due to incorrectly defined quality criteria, it will be difficult to achieve trouble-free operation of the product and maintain its stability at a high level.
You will be able to use the product only upon the project completion, when all the functions described in the requirements specification are implemented. If the development lasts for a long time, then by the time it is completed some of the functions may become irrelevant, making the product less competitive. This may hinder the achievement of business objectives. You risk finding out that the result does not meet your expectations only a few months after the start of cooperation. You can lose 3 or more months instead of a few weeks, which is enough to get the first results when working under T&M.
When working under a Fixed Price contract, conflict situations when one of the parties is in any case at a disadvantage are a frequent occurrence. As mentioned above, on Fixed Price projects, the customer shall pay extra for the development of all functions that were not initially included in the requirements specification. In turn, the contractor is fully responsible for the high-quality performance of the scope of work fixed at the start of cooperation. In particular, it shall provide the guaranteed technical support. Upon the completion of development of the main functionality, it can be difficult for the contractor and the customer to reach a common opinion about the classification of the required additional works: technical support or new functions development, i.e. at whose expense certain changes should be made. In such a situation, either party will be interested in accepting its vision and saving its own resources, which will inevitably entail losses for the other party.
1. Quick start of works
Unlike the Fixed Price model, which includes a long stage of drawing up and agreeing on the requirements specification, T&M assumes a quick start of product development due to the absence of the need for a detailed formalization of requirements. Thanks to the iterative approach, the priorities on the project can change directly during the creation of new functionality.
2. Budget flexibility, variable pace of development
When collaborating under T&M, the customer can effectively redistribute the budget by deciding what functionality to invest in now and what to opt out. The same applies to the use of best practices, for example, in response to product instability the team focuses on test automation. It is also possible to terminate the development at any time (according to the terms of the contract). For example, if the customer understands that the created functionality is sufficient to achieve the goal, or if the result of the first iterations did not satisfy the customer in terms of quality and service level.
Flexibility of terms and agreements on T&M contracts also applies to the pace of development. In case of temporary suspension of project financing, the customer can reduce the intensity of development by reducing the scope of tasks and the number of employees involved in the project. On the other hand, if it is necessary to quickly enter the market, the customer can expand the team and accelerate the pace. So, a T&M contract makes it possible to quickly respond to changing conditions and manage the project situation in a timely manner.
3. Process transparency
Working under T&M, the contractor provides the customer with detailed information about the resources and time spent on developing various tasks, as well as organizes access to the reporting system. The customer can participate in standups and demos with the development team, constantly receive up-to-date information about the project status and actively influence the result.
At any time, you understand exactly what is happening on the project. Such an approach promotes mutually beneficial cooperation with no hidden problems and risks, prevents the need for significant unplanned expenditures and has a positive impact on the quality of the product.
Our company invests in the development of long-term relations, in which transparency and openness are most appreciated. Therefore, it is important for us to develop a culture of joint discussion with the customer of various risks and response strategies when they occur. This type of contract does not foresee an additional budget for risks, so when risks occur a joint response is essential.
4. Situational management of product quality assurance procedures
A Time&Material contract provides the customer with the possibility to manage the level of stability and quality of the product under development depending on the current goal. In this form of collaboration, changes in requirements and even product concepts are allowed during creation of business functions. For example, in the first stages, a working prototype may be sufficient, for which there are no serious quality requirements. Over time, there is an understanding that it is necessary to ensure a higher stability than it was originally intended in order to bring such a product to market. In this case, the criteria for achieving the required level of quality will be supplemented as the product develops.
It is allowed to skip creating automated tests when developing the first version of the product for demonstration to the investors. However, when the product is actually introduced to the market, different types of automated tests, test management, regression testing, test plans, continuous integration and delivery (CI/CD) should be implemented. The customer has the opportunity to choose the procedures and practices that ensure the best effect in these conditions. It is often a choice between a quick stabilization of the most important product function and a gradual increase in the level of stability and quality over time.
In the process of development, implementation and use, it may turn out that a certain part of the product is a vulnerability in terms of quality (a bottleneck). Working under T&M, we can pay special attention to this functionality during manual and automated testing (additional regression testing and above-the-average coverage with automated tests).
Due to constant feedback and a clear understanding of current priorities, the contractor will be able to take into account all the nuances of quality requirements and meet the customer’s expectations.
5. Quick understanding of the contractor’s service level
Working under T&M, the customer can assess the level of service provided by the contractor during the first iterations. These are both approaches to project management and the degree of proactivity of team members, as well as the effectiveness and validity of certain actions. The level of service is not only formalized aspects of cooperation, but also a feeling of whether you are comfortable working with this contractor, which is extremely important for successful interaction.
Let’s consider the most negative scenario. When making a mistake in selecting a contractor, it is better to lose a couple of weeks working under T&M than half a year working according to the Fixed Price model, while not having the time to choose another contractor.
6. Synergetic interaction between the customer and the contractor
We believe that the best execution of a T&M contract involves building mutually beneficial partnership. Very often, such a contract means the use of agile methodologies (Agile, Scrum) and short iterations. The customer and the contractor are united by a common goal — the effective achievement of results (the implementation of product business functions with an appropriate level of quality and on time) through a well-coordinated cooperation.
The achievement of a common goal is facilitated by regular communication, which ensures a deeper synchronization of the parties regarding the current project tasks. Prevention of risks, prompt resolution of problems and issues, and transparency of task statuses make it possible to make more effective decisions, which will save time in the future. A synergy between the customer and the contractor gets achieved.
In our company, relations with customers are not limited to the contractor-customer concept. During the cooperation, we often advise owners and business representatives, immerse them in complex concepts and practices of IT processes and infrastructure, and tell how small investments in the technical debt handling here and now will return in the form of stability and scalability of the product in the future. Working with us or a company with a similar culture, the customer is immersed in the current software development processes and approaches, is fully involved in all activities, and can fully monitor the progress of the project as much as he wants.
A T&M contract is characterized by a transparent approach and no hidden risks in the contractor estimations. The cooperation is initially based on the win-win concept, the parties are willing to negotiate. This allows making decisions that will be beneficial to both parties at all stages of the project.
7. Deep involvement in software development process specifics allows saving money
Not every company interested in software development and support services has its own IT department and an experienced CTO, who deeply understands the nuances of the software development process and product lifecycle. Without such a specialist in the team, it can be difficult for a customer without a technical background to assess the efficiency of work and the reasonability of the approaches used by the contractor.
T&M promotes and sometimes drives deeper customer involvement. Joint standups, retrospectives, iteration planning, open discussion of problems and risks of the project, as well as constant substantiation of certain decisions by the contractor are important. All this allows customers to immerse themselves in software development processes within a fairly small number of iterations, understand the peculiarities of IT project management and actively participate in building processes based on best practices in the future. This increases the customer’s independence and allows them to apply the experience gained to other projects.
By observing the CI/CD implementation and test automation and understanding these processes, the customer can objectively assess the cost of further support, the importance of constant investment in technical debt and test automation, and systematically see all stages of the product lifecycle.
At the moment, 95% of our customers prefer the Time&Material contract, and its popularity constantly increases. We believe that this method of cooperation has become the standard for effective interaction between the contractor and the customer. In addition to the objective advantages of T&M for the customer, this type of contract is suitable for us as a contractor at a value level.
JazzTeam has experience in applying Scrum methodology to all types of projects, including those using the waterfall model and the Fixed Price contract type. However, it has been our experience that Agile and Scrum are best combined with Time&Material. Scrum processes provide an agile project management culture that meets modern requirements and challenges, including frequent deliveries of new product versions.
The use of a Time&Material contract (as well as the application of Scrum processes and Agile thinking) allows quickly responding to changes in business requirements and giving priority to the most important functions, while maintaining the speed of development and high quality of the product. By implementing Scrum and Agile processes in all T&M contracts, we always provide a high level of service that our customers can evaluate during the first iterations of cooperation.
The effective use of Agile approaches in T&M projects requires engineers to apply value-based thinking, constantly use best engineering practices, a high level of knowledge and experience, as well as self-discipline and skills of strategic planning for the future. All this forms our standard approach to work, since from the date of our company’s foundation we have been focusing on agile software development methodologies using a wide range of Java engineering practices. JazzTeam implements continuous integration and delivery (CI/CD) on all its projects and systematically uses eXtreme Programming (XP) tools. The principles we have been guided by for more than 10 years are reflected in our slogan — Agile Java Development.
PREFER WORKING WITH AGILE LIKE WE DO?
Working under Time&Material, we immediately introduce continuous integration and delivery into the project. The IT solutions developed by our teams have a modular architecture and loose coupling of components, which makes it possible to ensure the effective implementation of new product features. This means that fast deliveries are ensured already at the early stages of development. For our customers this is a great opportunity to focus on important business goals and quickly get new versions of the solution to be tested by targeted groups. To create the most important and demanded functionality (MVP), our team constantly synchronizes with the product owners on your side, including the marketing and sales department.
The possibility of using certain product functionality at an early stage of development is a principle that we always follow, including on internal projects. For example, while developing an application for automation of our staff work time logging, we introduced the automated delivery of functionality a week after the start of development, and one more week later, we created the most important business function, which immediately began to be used in the company.
Additional research (R&D) usually related to engineering challenges is frequently needed for the initial estimation of project labor costs. This is especially relevant for innovative products. During the research, it is required to make quick decisions and choose one or another direction. Not all R&D activities end with the expected result, so short iterations and Agile culture are ideal for them. T&M allows carrying out such research without considering additional risks, which means that the customer will not overpay.
JazzTeam has significant experience in R&D and works effectively on projects where the customer does not yet have a coherent idea of the ways of implementing specific solutions to achieve the business goal. In this case, we carry out the necessary research and build a technological foundation. Then during subsequent iterations, we can start implementation or stop cooperation at this stage providing the customer with a detailed expert analysis, estimation, architecture, or prototype of the future product.
Despite the above advantages of Time&Material, some customers have a number of prejudices about this type of contract and doubt its effectiveness. Over the years of work under T&M, JazzTeam has established and continuously applies effective approaches and processes to prevent possible risks that customers worry about and establish a trusted cooperation which brings the expected result and additional value.
Working with us, the customer chooses the degree of involvement in the development process: from obtaining detailed project statuses from our managers to participating in daily standups with the entire team and retrospectives at the end of iterations. We constantly provide the customer with information about the current status of the project, provide all the necessary reports on the work performed and organize the development process in such a way that cooperation with us is comfortable and does not require too much time to get a full understanding of the current situation on the project.
Our teams rationally use the time allocated for each task and make every effort to prevent risks associated with exceeding the estimation. JazzTeam established a culture of task decomposition and estimation at the level of corporate standards. A situation when an employee works on a task for days without a tangible result is impossible. If during the product development there is a risk of failing to meet the estimation for some reason (for example, due to the complexity or non-triviality of the task), our specialists act according to the Red Flag rule developed by the company.
The Red Flag is a metaphorical expression denoting the occurrence of a problem that must be solved in order to avoid exceeding the declared estimation. The essence of the rule is timely escalation to the manager responsible for project progress. If an employee understands that he/she does not have time to complete the task within the declared estimation, he/she “raises the red flag”, i.e. informs the manager about the difficulties. According to the Red Flag rule, the problem must be reported in advance (before the deadline), so that the manager has time for the necessary actions: discussing the situation with the customer, searching for the optimal solution, redistributing tasks among the team members, etc.
A T&M contract provides an opportunity for active involvement in the development management process and ensures continuous monitoring of the project status. It is up to you to decide how deep you go in different situations. By interacting with the team, you begin to feel the processes and understand the root causes of changes, including negative ones. With this type of cooperation, you can participate more actively in the distribution of the team’s efforts, thereby managing the budget with a greater degree of awareness.
In our company, managers always notify the customer in advance about whether we meet or exceed the planned budget. The customer has the opportunity to respond flexibly to the situation, for example, to handle the risks together with the project manager, refocus the team on advancing on technical debt, suspend development or increase funding for a specific business function.
As evidenced in practice, the transparency of processes and budget formation based on the cost of actually performed works allows saving up to 50-70% on the development of an IT solution.
By contacting JazzTeam, you can start cooperation with just one service. For example, you can order R&D, architecture design, or refactoring. This way you can evaluate our work within several iterations and, if they are successful, order other services (development, testing, management). We have been working with many customers for more than 5 years, and very often we started cooperation with small tasks, then confirmed the level of service provided, earned trust and further expanded the teams and the scope of services.
Also at the start of cooperation (in addition to the interview), we offer to test our specialists and our level of service on small side tasks (for example, technological research) before involving them in the main project.
At one of the projects, we collaborated with a large foreign telecom company that has a negative experience of interacting with a contractor providing software development services. In order to dispel the customer’s doubts and strengthen confidence in our competence, we set a test period , based on the results of which the customer decided to continue the cooperation. During this period, we took several research tasks and prepared an MVP (minimum viable product) to be demonstrated to the customer. As a result, the customer was satisfied with the work done by our team during the test period, and this gave the start for a long-term productive cooperation. The customer took into account the objective result, as well as the level of proactivity, the ability to ask the necessary, competent questions, the level of independence, and much more.
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