There may be other payments for agreed fixed price items within the contract such as the cost of delivering a hardware environment, but the main cost will nearly always be the cost of delivering the software.
The advantage of the above approach is that the contractor and client can develop the detail of the system using Agile methodologies during the build and then use the ‘as built’ documentation for both costing and testing the system.
The documentation can also be used to prove the system delivered by the contractor satisfies the contract and hopefully the original business case, although in many cases the organisation has moved on since the business case was developed.
It is important to note that Agile projects need strong governance as they will by their nature evolve and it is important that the project evolves in the direction defined by the steering committee. It is unlikely that the end deliverable will be exactly like that envisaged in the business case, but that is ok, as long as the deliverable changes have been approved by a process which management is confident gives them the best outcome.
In response to the question posed in the title, the use of function points does not give a true fixed price contract – but gets pretty close. The contract you wind up with is more a mixed fixed price/schedule of rates contract.
It is fair to say however the contract has the price “boxed” to a known amount at the time of tenderer selection, which can easily be related to the funding allocated. The main advantages are the project can be delivered quickly using Agile rather than the delays associated with traditional Waterfall methodologies.
Also, compared to time and materials contracts where you still pay even if nothing is ever delivered, costs can be controlled by managing the number of features delivered. This way, you at least get a working deliverable for your money and if the governance is right then it should be a deliverable which satisfies your organisations current needs.
The above approach should be something the Prime Minister’s ICT Procurement Taskforce consider in their review. I would suggest that the above approach could be used within current procurement rules. However if this is to happen agencies will have to improve their contract management and ICT governance capability in relation to the tendering, formation and management of ICT contracts. Hopefully this will improve in the future.
I have used the above approach on several projects with great success and would encourage anyone with suitable projects to do the same. Please feel free to contact me if you want more information.
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