Contract based Selling – A PMs Guide

Throughout my career as a Project Manager, I’ve unknowingly been somewhat of a Salesman.

Now I am not for one second saying my day-to-day is in anyway relatable to that of a salesperson. My point is simply that there are parallels that exist between the account management team and the project delivery team and selling doesn’t stop once a project is signed off and live.

With the scene set, you’ll be disappointed to know that there are no ‘Wolf of Wall Street’ stories or left-field selling techniques in this blog despite my Mother saying I have a vague resemblance of ‘that guy who’s in that funny sales film’, which I hope is referring to Leonardo playing Jordan Belfort rather than Gervais playing David Brent. 

Everyone has their part to play. Often the success or failure of a project can be decided by how it has been sold along with the expectations that have been set through the sales process. As part of this blog, I want to provide my project management spin and personal experiences on the way projects are typically sold and point out some key areas which I think are important to consider when either selling or buying solutions.

Fixed Price Vs Time and Materials

Let’s start with the basics, so without going into too much detail on all the weird and wonderful contract types that a project can be procured under, let’s just focus on two of the most common at a high level. These are Fixed Price and Time & Materials (T&M). There are all sorts of abbreviations and naming nuances that I’ve seen used in contracts so it’s likely you may have come across these before under different guises.

Fixed Price by definition is a model that guarantees a fixed cost and scope for the project, regardless of the time and expense.

Time & Materials (T&M) on the other hand is when the Buyer agrees to pay the Seller based upon the time spent by the Sellers resources to deliver the project on a variable cost and variable scope basis.

Considering the above approaches in the context of risk, a fixed price project will carry a risk to the seller as opposed to the buyer due to the cost and scope being fixed i.e. any additional resource to deliver the scope will be at the expense of the seller.

A T&M project will therefore carry a risk to the buyer due to the scope and cost being variable i.e. any additional resource to deliver the scope will be at the expense of the buyer.

The question you’re probably asking yourself now is, why would any buyer go down the T&M route as opposed to the fixed price route? It’s a valid point to ask and it’s worth pointing out that whoever owns the risk also has the opportunity for reward and understanding this goes back to requirements definition and budgeting,

A fixed price project will typically carry an increased day rate and higher resource cost than a T&M project due to there being contingency agreed within the commercials to provide some delivery tolerance based on the risk profile of the project. So as long as the requirements are well defined and the overall fixed price project cost is within the buyers budget then everyone is happy; let’s crack open a cold one and get stuck into delivery!

In the real world, however, this isn’t always the case and if we take our rose-tinted glasses off for a second then quite often we will find that not all of the requirements and scope of a project can be accurately defined upfront. This is due to them either being unknown or subject to change. This is when a T&M project becomes the contract type of choice and gives the buyer some flexibility in terms of the scope and budget, which can be managed iteratively as requirements are defined with a lower upfront cost as the risk of the delivery sits with the buyer. In other words, no delivery tolerance/ contingency needs to be agreed as the delivery risk sits with the buyer so if the project delivers under budget the buyer will realise the benefits of this.

This should now provide a glimpse into the type of conversations that are happening on both sides of the fence which ultimately determines the way in which projects are delivered and managed. These conversations should never happen in isolation and  it’s part of my job as a project manager to work with the sales team and the customer to ensure we match the right contract for every project sold.

So what does all of this mean in real terms?

So, we’ve now matched the right contract type to the project based on how well the requirements have been defined and the scope and risk profile have been agreed upfront with the customer and accounted for in delivery. You’d be forgiven in thinking that the job is done but here are some good practises and things to consider that are worthwhile pointing out.

Contract types don’t need to be procured on a project by project basis

You won’t often hear the word “creativity” when it comes to contract negotiations but where there’s a will there’s a way.  I’ve seen some great examples of mitigating project delivery risk through creative contract management.

A good example of this is deciding the contract terms based on delivery phase as opposed to this being done for the project as a whole, when used in the right way this can be a great way to de-risk project delivery.

For instance, typically the planning phase of an Azure Migration Project would have less uncertainty than the migration phase as often customers won’t stray too far away from a standardised Azure Design based on best practise architectures which often will be templated to some degree. Whereas in contrast, the migration phase will be dependent on the customers applications and services that are in scope to be migrated which are unique to each and every customer and migration complexity is determined by this.

So based on this, a fixed-price planning phase for this project would seem reasonable as the deliverables are well defined and the likelihood of change and delivery risk is considered low. Whereas the Migration Phase would be dependent on the complexity of the business applications/ services that we’re tasked with migrating. Therefore, if detailed business and technical knowledge of the application estate doesn’t exist upfront to fully understand migration complexity then this phase would lend itself to T&M engagement as a fixed-price delivery phase at this point would carry a high degree of risk and therefore a high amount of delivery tolerance/ contingency which may not be commercially viable.

On a side note, another option could be to perform detailed analysis to evaluate the customers application estate on a fixed-price basis to fully define this stage which would then lower the delivery risk and tolerance required which in turn would make a fixed price Migration phase more viable.

It’s everyone’s responsibility to understand and deliver against the contract type

Ultimately, it’s down to the project delivery team to bring the contract to life and to manage the project in a way that’s consistent with what has been agreed. This isn’t solely the Project Manager’s responsibility; it’s everyone’s within the project team.

An easy example to illustrate how management differs between contract types can be found when we look at issue management. Let’s say a task takes longer than required due to a unforeseen issue that’s arisen in a project. A fixed-price project would determine that additional resource to manage that delay is at the expense of the seller due to scope and cost being fixed which is where the delivery tolerance/ contingency comes in handy.

On the other hand, this same scenario on a T&M project would instead need to be resourced by the buyer through the use of a commercial RfC. This needs to be understood across the project team as this scenario shows us how the contract type determines how issues are managed and mitigated through the lifecycle of a project at all management layers and who’s going to be responsible for those unplanned costs.

Governance is Paramount

Last but not least, it’s blindingly obvious and extremely important to point out that all these conversations and considerations around project contract types are only as good as the paper it’s written on! The Project Initiation Document and Statement of Work along with all supporting contract documents should all be consistent and tell the same story. Transparency is key as this provides the project with the best foundations possible to be successful.

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