Stop Doing Time & Materials Consulting Agreements

Most consulting firms do their statement of work and their projects on a per hour basis. They tell you how many hours they think the project will take, a blended set of rates and that they will do demos every two weeks so you stay on the same page.

That all seems fine until you start thinking about what you, as the customer, are paying for. You are paying for hours, not deliverables. It seems wrong on many levels. Primarily, it is wrong because both the consulting firm and your organization will spend the next few months discussing (arguing) the hours being billed.

All the while, the team back at the consulting firm will be making sure they are meeting their 85%+ utilization rate per week, set by management. They are hoarding their hours even when they could use the help of an expert at the firm. If the team engages the expert, that means fewer hours for them.

Once again, the product you are buying and arguing about is hours spent each week on the project, not discussions about the value-based deliverables for your business.

It would seem a much better use of time and energy to be discussing the specific deliverables that you need and supposedly are paying the consulting firm to deliver. With a fixed-bid project, that contains fixed-bid milestones, once the statement of work is signed, both sides are focused on discussions about the deliverables. The money discussion is over for the most part. You have both agreed what each milestone is worth and you can move on to bringing value to your business. When a milestone is finished and delivered to your organization, the consulting firm sends an invoice for that milestone. No surprises. You have already agreed on how much the invoice will be. If the milestone is late, you don't get billed until it is shipped.

The structure of a project's statement of work is telling for how a project will progress. If the statement of work defines the team size, roles, and the mix of rates per role along with the duration of the project, then you will probably be arguing about the billable hours each week.

Instead, if the statement of work has specific value-add milestones spread out over the duration of the project, you are in a good spot. You are starting off with a common understanding of the project and an easy way to focus on the business value you need from the project.

A good statement of work will contain the following sections and most importantly a list of milestones and deliverables:

• An overview of the project and its expected value to your business
• A list of deliverables, their relative delivery timeframe from the beginning of the project and the invoice cost per milestone (see example below)
• The story-level scope for each of the listed deliverables
• Assumptions used to support the estimate, scope and project duration
• A defined process for any necessary change controls during the project
• Supporting materials in the appendices
• Revision history for the statement of work

An example of what you will see in a statement of work that has value-add milestones as the focus:

Fixed-bid software development projects are hands-down better for your business. A fixed-bid project creates a focus on the value-add milestones for your organization and the development team at the consulting firm.

If the consulting firm you are working with is talking more about their tech knowledge than they are asking you about the business goals you have for the project, it is time to find a business-minded firm that delivers great results through fixed-bid software development projects.

Originally published at Twisted Pair Labs