In a fee for service model the Client pays regardless of results. I spend three hours looking into a problem for you, you pay me for three hours. Regardless of the outcome. It would be nice if the three hours resulted in a good outcome for you. How about if the three hours resulted in a negative outcome for you?
Would you still be keen to pay me the three hours?
In a lump sum fee for service model, the Client pays a set amount, regardless of the amount of time it takes to achieve the outcome. As with the previous model, there is no guarantee of outcome.
But if the amount time required to complete the project is greater than I estimated, or if merely additional work is required, the Client is in for additional charges. Who likes charging for additional work, and who likes to pay for such charges? Depending on budgetary pressures, the discussion centers around – Why was this not included? You should have anticipated this? And why is this so expensive?
Now let’s add poor project definition, competitive pressures to be the lowest cost service provider, and a guaranteed outcome, and what do you see the outcome of all of this? Great working relationships? A happy experience for everyone? Sloppy work?
A better way to obtain the services you require looks something like this:
- Preselect several competent service providers. Each has the experience and technical competence to complete the project.
- Break your project into two segments. One segment is for work that is standard, has great definition and has few unknowns with regards to the effort required to accomplish. The other segment is the remainder of the project.
- Request a fixed price for the defined work. Request a percentage fee for overhead and profit for the remainder of the work based on final cost of the work.
- Request a list of anticipated project participants. Request hourly rates for project participants.
- Develop an analysis based on your experience of previous projects to determine the expected time and staffing required for the undefined work. Plug in the costs for each proponent.
- Estimate the costs of the entire project and apply each proponents fee.
Based on this analysis, you can select which service provider is expected to be the best value. And by estimating the amount of effort required for the undefined portions of the project, you can track and evaluate the efficiency of the service provider for future projects.
Using this model, great service is assured, while stress and confrontation is minimized.
