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Is a ‘fixed price’ Agile contract possible?

Ian Brightwell | Aug. 15, 2017
How function points can be used to help create contracts for tech projects where Agile methodologies are being used

The objective is for the client to get the best value for money solution with the final delivery to be of high quality and delivered as quickly as possible satisfying the client’s needs with the least risk.

Fixed price tenders struggle to achieve all the above objectives. They are difficult to price hence often have a premium for risk. They also often fail to satisfy client’s ultimate needs because the requirements have to be defined right up front in the business case and tender documents.

On the other hand, a tender which requires a tenderer to bid based on function points is more likely to deliver a system which will satisfy client needs and represent good value for money, as the tenderer is providing a price per function point for a system of a certain size and type not a price for a completed system with functionality defined at the time of bidding.

To achieve a price per function point, the tenderer will need to be provided the high-level functional model used to price the project and a statement of the non-functional requirements. The tenderer will then provide a price per function point for the system based on size and complexity not detailed functions, and a fixed price for any non-functional requirements not covered by the function point count model.

The evaluation of tender responses therefore will be evaluated on the price per function point multiplied by the total function points provided in the tender plus any other tendered amounts for non-functional deliverables.

These figures when totalled will form the basis for the comparative value for money analysis used in tenderer selection. Value for money is often determined by factoring the non-price evaluation criteria (experience, quality, methodology, etc) against the financial cost of the project.

The contract formed from the above tender process is in fact a mixture of a ‘schedule of rates’ for function points delivered and fixed price for selected non-functional requirements.

 

Managing function point contracts

The management of function point contracts is not different to managing any time and material contract except that the contractor is paid on delivered function points not hours of effort expended.

This requires the system to have ‘as built’ documentation created at the completion of the project and counted by both the contractor’s and client’s function point counters.

They need to agree the number of function points delivered. Amazingly this is a far less combative situation than I have experienced when arguing about the cost of variations in a fixed price contract.

Once this agreement is reached then the contractor can be paid an amount equal to the contracted price per function point times the number of function points they actually deliver.

 

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