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The success of the development to a large extent depends on the correct construction of relations between the contractor and the customer. By using the right type of contract for the project, you can mitigate risk and increase the chances of achieving the desired results for both parties. One of these contracts is Time&Material, which will be discussed below.
Time & Material (abbreviated as T&M) means payment for the result, taking into account labor costs. The customer pays for the man-hours that the contractor's team spends on developing and implementing the software. The model shows itself perfectly in the case when it is not possible to determine the deadlines or scope of work.
Cooperation with the contractor is divided into stages of 2-4 weeks. Before each of them, the team, with the participation of the client, determines the tasks and goals, and by the end of it, reports are presented on the statement of labor costs and results. The stage can end with a back-end modification, a fully working software prototype, and in exceptional cases even a ready-to-release version of the system.
The customer pays for the project based on the labor costs and the hourly rate of each team member, and therefore its unjustified bloat is excluded. Payment terms are discussed individually. Payments can be made in stages, every month, every six months, etc.
What kind of projects is T&M suitable for?
- The project is at the stage of testing, bug fixing, maintenance, improvement. Each stage can be specified in detailed tech. assignments, especially when primary design documents are accessible and understandable.
- A medium-term project developed from scratch. Characterized by a period of up to six months, a team of five people and at least an average technical level. documents. With the Pay As You Go model, the contractor can easily adapt to market and client requirements, so specific specifications may not be available initially, documentation will be prepared in the process, or will be the first task.
- A large project started from scratch. When a project requires a minimum of 25 people, and development takes at least a year, it is quite difficult to make preliminary specifications, and therefore it is more rational to use the T&M model.
Pricing Model Advantages and Disadvantages
From the position of the customer
Delegation. The client communicates with the project manager, discussing the main requirements, while he is engaged in the distribution of tasks in the team.
Prompt response. The plan and scope of work can be easily changed when communicating requirements to the project management.
Financial planning. With the T&M model, you can save up to 10-30% of the budget by dividing it into short and at the same time transparent stages.
Transparency. The client has constant access to labor cost accounting and task management systems. Due to the stages and agreements on the account of intermediate deliveries, the client is provided with intermediate options with working fully completed parts of the functionality. This eliminates force majeure situations when developing a project without feedback from the customer for several months.
Waste of time. The customer will have to pay more attention to the project in T&M, which is not for everyone. At the same time, there is a significant plus from this, since the quality of the final product will be higher.
Uncertain budget. Having no idea how long it will take to implement, the customer is forced to face financial risks. Additional costs are not excluded if you want to save on the number of specialists.
An unscrupulous contractor. There is always a risk of running into an unscrupulous company that overstates real labor costs. It is recommended to carefully choose the contractor, pay attention to the breakdown of the project development process into stages.
From the contractor's perspective
Focus on the project. T&M motivates the contractor to be involved throughout the entire work process. There is no time to relax and let things go by themselves, which is an indisputable plus.
Payment after the fact. The contractor is entitled to payment for the actual costs of the team's labor on the project.
Minimum risk. With smaller amounts of evaluated functionality, it is much easier to determine the budget, so it is easier to evaluate the project with T&M.
Rational distribution of resources. In the interests of the contractor, so that his teams do not stand idle, and therefore project managers build calendar schedules in such a way as not to go beyond them and at the same time keep the team in good shape.
Customer cost-effectiveness. Some customers will certainly strive to save every penny, which entails disputes and mistrust. Such interaction negatively affects the project.
No guarantees. If, for example, the work was scheduled six months in advance, and the customer ran out of budget or simply changed priorities, then the team will be left without work.
Introducing changes to the requirements. In the case of T&M, the customer can afford to redo the interface and functionality. Some contractors find it easier to get directions once and follow them from start to finish.