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The Advantages of a Fixed-Fee Contract

Consulting & Advisory Services
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If you’re familiar with TopBloc, then you are probably already aware that one thing that sets us apart from other Workday Services Partners is that we offer “fixed-time, fixed-price” services for literally everything that we do (not just our Workday Launch deployment projects). But what do we mean by “fixed-time, fixed-price” and how does this benefit our clients? This article addresses some of the common questions that we receive regarding our fixed-fee pricing model. Keep reading to learn why we structure our contracts this way and why we believe it offers the most client-friendly service.

What Does “Fixed-Fee” Mean?

When we talk about our services as fixed-time and fixed-price, what we are saying is that our contracts commit to completing the agreed-upon scope of work within a pre-determined period of time and for a set cost. We are providing a fixed-fee estimate of the work and cost associated with the project in its entirety.

Fixed-fee is a type of pricing model. Sometimes referred to as a “lump-sum” contract, a fixed-fee agreement establishes a set price for the completion of a service. While many software service providers prefer to use a time-and-materials model, fixed-fee is a common pricing system that you are likely more familiar with than you think. It’s used for most purchases you probably make – any time you go to a store or shop online, you’re agreeing to purchase the item for a set price (or fixed fee).

How Does “Fixed-Fee” Compare to “Time-and-Materials”?

As referenced above, the fixed-fee pricing model is inherently different than the time-and-materials model that many of our competitors rely upon.

Using a time-and-materials model, a service provider will estimate the full cost of doing business in the following manner. After agreeing upon scope, the services provider will develop an estimate of the number of hours they need to complete the associated tasks, and then apply an hourly rate for their expertise and effort. The resulting price that the client will pay is the combination of these two metrics. That means that if a project is expected to take 100 hours and the organization charges $150/hour, then the total contract will be quoted as $15,000. Time and materials pricing, therefore, is dependent upon both the estimated hours the service provider believes a project will require and their rate card.

Fixed-fee models operate differently. Rather than relying on an equation that multiplies the expected number of hours a project will require and an hourly rate, fixed-fee estimates provide an overall price quote for the full scope of work. There is no variability, as the total cost of the project is not dependent on hours or a rate card.

Fixed-price contracts tend to be best suited for projects in which a scope can be clearly determined upfront and the labor needed to meet the contract’s terms can be estimated with reasonable certainty. At TopBloc, we’re able to leverage this type of pricing model because of our experience in executing hundreds – if not thousands – of Workday deployments. We utilize our expertise to estimate the total amount of effort required to complete the project and price accordingly.

The Advantages of Fixed-Fee Pricing

TopBloc structures our contracts using a fixed-fee model in order to better serve our clients. There are several advantages to a fixed-fee model that clients benefit from.

First, fixed-fee contracts are more transparent. We deliver full visibility of what to expect for project cost and timing so that our clients aren’t surprised at the end of their project. Because our fees are not dependent on the number of hours of service your project requires, our agreements establish and lock-in the full cost of your requested services upfront. This cost predictability is the first advantage of this model. Because we are committing to complete the agreed-upon scope of work (SOW) within a set timeline at the set price, that means that you, as the customer, have complete budget predictability from the onset of your project.

Especially for budget-conscious organizations, this is a major advantage over a time-and-materials structure. Time and materials quotes are essentially just an estimate. The services partner is estimating how many hours they believe the project will take and using that estimate to derive a general expectation of your total project costs. However, the cost you saw in the proposal is not necessarily the price you will end up paying. Even the most experienced companies cannot provide perfect estimates for their hourly work. It’s common that time-and-materials proposals underestimate the number of hours that a project will take. When this happens, the overrun in hours gets passed directly along to the customer at the agreed-upon hourly rate.

The second primary advantage is tied to the first: fixed-fee models reduce client exposure and risks. With the fixed-fee model, if TopBloc underestimates the level of work required to complete a project, we own the financial responsibility. Should we need to take more hours and more resources to finalize the project and meet the agreed-upon deliverables, then that risk – and the associated cost – is on us. In that circumstance, we would have to eat into our own profits to fulfill our end of the contract; regardless of if we have to apply more resources, the customer will not be charged a single solitary cent more than the fixed fee amount we’ve already committed to. In time-and-materials language, this means the amount paid for our services won’t increase, even if more materials or time are required than initially estimated.

Partnering With TopBloc for All Your Workday Needs

Considering a Workday deployment or looking to add on new functionality, modules, or integrations? We’d love to help!

TopBloc is a technology consulting firm that specialized in Workday deployment services and on-demand support. We can work with you to determine how Workday can help your organization to grow and mature, and can offer strategic assistance in roadmapping how best to deploy new Workday capabilities for your company. Contact us to learn how we can support your upcoming project!