26 February 2009

Fixed Bids - The Bane of Agile?

Kaushal Karnad, a PMP and Certified Scrum Master in the Certified ScrumMasters group I follow on LinkedIn, asked the group
Can fixed bid work for Agile?
A fixed bid is the bane of an agile team. Why?

Because your beloved team assumes most of the risk. Fixed bids throw up a giant red flag of distrust -- Not the kind of client relationships most of us are seeking.

It is hardly possible to be agile and still agree to a fixed bid project -- unless the bid is astronomically padded in your favor. But I'm guessing the kind of client seeking a fixed bid is not predisposed toward selecting high bidders, so that’s out.

Product owner requirements in an agile project are largely discovered and prioritized along the way. To commit to a fixed bid for an entire project would require you to pull a number out of thin air. The team would be asked to commit to a number that has no basis in estimable reality -- very stressful for everyone.

Don't despair Kaushal. It's a stretch, but following is one possible pseudo fixed bid scenario to consider:

Assumptions:
  • Start with 1-month "trial" iteration zero
  • Have, say, 4 developers at the princely sum of $100 per hour
  • Iteration zero will be "fixed-bid" at $64K
After your iteration zero retrospective, your client will know exactly what's been produced because you’ve shown an impressive demo of the fledgling product. He now has a decision to make - scuttle the project or continue for another "fixed-bid" iteration. The client could continue to make the same series of "scuttle or continue" decisions following the end of the iteration.

The significant downside is that you're still assuming all the risk, since you could line up a rock-star team for this project, and then on the client's whim, have to blow up the team following iteration zero. But, assuming you can last beyond iteration zero, each iteration should bring a level of trust.

I have no legal expertise, but here are some practical contract addenda that might (or might not) help should you venture into the quagmire of fixed bids:
  • Team will demo shippable software to Customer every 30 days at no additional charge
  • Customer may replace any requirements that Team hasn’t yet started working on with one or more of equal total size (in the estimate of Team) at any time.
  • Customer may request interim, mid-iteration releases at any time, and will be charged an agreed-upon time and materials cost.
  • Should Customer’s business goals be satisfied early, Customer may terminate contract for N% of the remaining un-billed contracted amount.
More Information on Fixed Bids: