Fixed-Bid Vs Time and Materials

There are two main ways we structure projects at Bixly depending on our clients’ needs. Andrew and Cris talk about the differences between these two ways of structuring development work. This conversation covers they types of projects each one is suited for, budgeting for each, planning for each, and ultimately setting our clients up for success at launch.

A fixed-bid project is one in which the requirements, timeline, and cost are all defined. The goal is to have as much as possible known up front and we deliver at two or three-week milestones. Time and materials, on the other hand, is where will bill hourly for work. As Andrew says, “We do fixed-bid if it’s a project with a set list of requirements, it has a budget and a timeline. If you say, ‘I need a developer for six months to come alongside my existing team,” we would do that as time and materials.” Time and materials is extremely flexible while a fixed-bid project is extremely predictable. Often times, time and materials (or staff augmentation) is a great fit for clients who are debating whether they should hire someone internally for their project. Here the staff augmentation model shines, because often times there’s a broad range of skillsets that need to be applied to the project and we make it easy to pivot people on and off your project as needed.

We help our clients determine which is the right fit for them in our earliest conversations. If a client says they need a project delivered at a certain time, then that’s fixed-bid. Time and materials isn’t designed to deliver a product at a certain time; it’s designed to provide you with as much development bandwidth as you need. Or, if a client says they have a set aside budget for custom software. That’s a good fit for a fixed-bid project; not as good a fit for time and materials. On the other hand, some clients may already have a team of developers who are really busy but they are eager to get started with another initiative on their software. They want extra hands ready to be productive on day one. That is a really good fit for time and materials. This also allows for flexibility on the project planning, usually working and planning in two-week sprints as we iteratively work on the project. We still help you identify priorities and make estimates along the way to ensure that your project is well planned and you can budget accordingly.

In reality, we usually end up doing a hybrid of the two. Most frequently we create an MVP using the fixed-bid model to completely plan out that project, refine the ideas, and execute. This usually takes about three months. As our client takes their MVP to market and to investors, we then switch to time and materials to continue development in a much more agile fashion, responding rapidly to customer feedback. We continue to support and develop on the project in this way for as long as our client needs that work done.

Every project is different and we find that these two general models for project execution serve the varying needs of our clients. If you are ready to start developing today, and you’re wondering which model is best for you, set up a free consultation on your software today!

Transcript:

Alexandra:

Hi everyone. Welcome back to Bixly’s Tech Tuesday. Today, Cris and Andrew are taking on the topic of a fixed-bid project, versus time and materials. How are they different? What are they great for? How you should be structuring your project to have the best success when you launch your app out into the wild. I hope you enjoy this conversation.

Andrew:

Fixed-bid is when the requirements are defined, the time frame is defined, and the cost is defined. Everything is essentially known up front, as much as reasonably possible. Then the project just starts, and we deliver at these, typically two weeks milestones. That looks like a traditional, fixed-bid project.

Andrew:

Time and materials is where we’re actually billing for a time. To draw a contrast here, we do fixed-bid if it’s a project. If you have a budget, you have specific requirements, you have a time frame that you need it delivered in. We would do that as a fixed-bid project. If it’s not a project, if you say, “I just need a developer for six months, to come alongside my existing team and help me out. I want to oversee them”, that’s not a project. That’s, you want some extra development help. We do that as time and materials.

Andrew:

Time and materials is extremely flexible. It’s for when clients aren’t looking for, “I have this much money to spend, and I need it by this date”. But rather, “I need this much help for this period of time”.

Cris:

We’ve referred to it, and we still do at times, as staff augmentation. Time and materials, or that staff augmentation mode, is the spot where you’re deciding, “Am I going to hire someone internally? Or do I just maybe want to outsource with someone?”. The idea of, “Just use the team for what you need them for. Pivot them in, pivot them out”, is very beneficial to lots of projects. But again, they’re those more flexible type projects, where you don’t necessarily have a set budget and timeline and schedule of tasks to be completed, and that sort of a thing.

Cris:

It’s not that you can’t follow a time and materials model when you have those parameters laid out. But it just lends itself to, “I have time to spend”. R&D type stuff tailors really well to time and materials.

Andrew:

Right. That’s something we help our clients do very early on, in this initial discovery call. Does it make more sense for you to go project based? Which again would be fixed-bid. Or does it make sense for you to go time and materials, in a staff aug type arrangement? These things are pretty easily uncovered, one way or another. If someone’s talking to us, and they say, “Well, I need this to be ready in 90 days”, staff aug is not intended to deliver something at a certain date. It’s intended to provide you as much development bandwidth as you need.

Andrew:

Or, “Okay, I have a budget of $110,000”. Okay, that’s probably not a good fit for staff aug. That’s a good fit for a project. On the other hand, we have people that will come to us and say, “We’ve got a team of six developers. They’re really busy. We have another initiative we want to start. We’d really like you to provide us with two developers for the next year to help drive that. Then we may ramp it up too, if we need an additional set of hands”.

Andrew:

That’s really good for staff aug, and it doesn’t require that they map out, “Okay. Over the next year, for the first two weeks we’re going to do this. Then the next two weeks, we’re going to do this”. We’ll do that more in an agile type approach as we go.

Andrew:

As we go through, we still help you identify priorities. We still help do estimates, and things like that. But the staff aug time and materials is intended to be much more flexible, when you just need help for a duration of time. As opposed to project based, fixed-bid, when things are very well defined.

Andrew:

We’ll usually do a hybrid of the two. Circling back to the whole MVP thing. Both of them are appropriate. What we’ll do in many cases is say, “Okay. Let’s help you define an MVP. A three month MVP. We’ll do that as a project. It’s fixed-bid. You’ll move through that. Then afterwards, assuming your project’s successful, assuming you’re getting the kind of feedback you want from your clients. That it makes sense to continue with your investment”.

Andrew:

In many cases, that’s a good time to pivot over to a staff aug model. Where, “Okay, this thing is proven. Now, I don’t want to go out and hire developers, because maybe I don’t know how to do that. Or I don’t want to have the overhead of doing that. I just need somebody 40 hours a week, until I don’t anymore”. That’s a great fit for staff aug. We love to provide the hybrid of those two. In many cases, it makes sense to start out with the MVP as a project though.

Andrew:

Keep in mind, with staff aug, it’s more that you as the client are driving the priorities of what the developers are doing. With staff aug, the intention is that you as the client know the priorities. You don’t necessarily need to understand technically how any of these things are going to be done. Or what sort of technologies they’re going to use. But you’re going to drive what the next 10 things are on your list, that are going to happen over the next two weeks.

Andrew:

Staff aug is done in a very Kanban or agile style iterative way, where we’re constantly getting feedback, adjusting priorities, in two week increments. Or two week sprints. Getting feedback, going forward. As opposed to the MVP, where we’re really going to be planning out the three months worth of work. Still in two week deliverables. But it’s more that, because we’re fixing the cost and the time frame, we have to plan that out.

Andrew:

That’s also part of the reason that we do MVPs in three months. Because you can plan three months worth of work. It’s much more tricky to plan three years worth of work. Then, it’s unrealistic to think that that’s going to be unchanging. MVP or project based, we plan three months. Staff aug or time and materials, we plan in two week increments and sprints.

Cris:

I think of it, fixed-bid, you’re a customer that, say for instance, hires painters or something like that to come to your house. They’re going to paint their house. They’re going to show up, and you’re going to have some kind of a consultation on the front. You’re going to pick out the colors. You’re going to tell them, “These are how many rooms”. They’re going to buy all the stuff, and you’re going to lay out the whole plan. Then they’re going to show up one day, and they’re going to paint your house. Or it’s going to take a week, or however long. Then it’s going to get delivered, and you’re going to pay, and you’re going to move on.

Cris:

Whereas with time and materials, as the client, you’re a little bit more like the foreman that’s working with the painting team. You’re still planning, you’re estimating. All those things that you talked about. But it’s more like, “Okay. We’re in this room now”. As the client, you’re guiding, “Okay. Well, I think I want this wall to look this way. Let’s get that painted up. Let’s see how it looks. I like that, that’s good. Okay, let’s pivot over to this room now”.

Cris:

Again, it’s more of a, built it as you go, with estimates along the way. But you’re involved through the process, on the time and materials side. But on the fixed-bid, it’s all about up front planning. It’s not that we’re going to box you out, as a team. But you don’t have to be as highly involved, and you’re just going to be able to look at those regular deliverable milestones along the way, when going with the fixed-bid model.

Andrew:

Yeah. They both have their place.

Cris:

Sure.

Andrew:

They both have their place. I think with the same client, they both have their place. Just at different stages of the project. Earlier on, you probably want to do more planning. Later on, once the trajectory of the project has been established. Also, trust has been built up between us and the client. Then it’s easier to take things in a more iterative and agile two week approach there.

Andrew:

Both models can work well with budgeting. The time and materials one is going to be more about budgeting throughput. You can budget, as we do at Bixly. We’ve got a development budget for X numbers of developers, per month or per quarter. As opposed to fixed-bid, or the project, you’re really budgeting out with the project holistically. It’s more about the total cost of the project. Budgeting that, as opposed to time and materials, you’re budgeting your throughput, or your burn rate.

Andrew:

One nice thing about time and materials in this scenario, and budgeting, is that the time and materials is more flexible. Not that you can spend 40 hours this week, and 30 hours the next week, and 700 hours the following week. But certainly, if as you’re going through the project, you’re doing a burn rate of 40 hours a week. Business is going good. You’re getting good feedback from clients, and you want to increase that to 80? There’s no problem doing that. We can completely just, pretty much on a dime, adjust and start to provide you with the additional bandwidth that you need.

Andrew:

As opposed to a project, fixed-bid. That’s different, because we’ve already set out the cost of the project. To go add more developers to that, it just requires more effort, and change orders, and things like that. Because it affects the overall cost of the project. Whereas again, with time and materials, it’s really just about your burn rate.

Cris:

The funny thing is, a lot of people that may even be self funded, they assume that they want to go with the project based. Because it’s, “I have this much money to spend”. Whereas, being self funded, you actually, again with that flexibility you described, can pivot your team around. As you get particular feedback, the money that’s actually coming out of your pocket can pivot and shift, if you need to cut budgets forward and backwards.

Cris:

It can even work with investment type opportunities as well. If they’re really focused on, like you said, that throughput of what is being delivered, and what kind of feedback they’re getting, it works great. Or perhaps they just want a set number, so they cut a check every month. It really depends.

Cris:

We even took some of the guesswork out too. Where you’re not even dealing with disparate rates of, “This is how much you’re paying for this entry level developer. This is how much you’re paying for a senior level developer. Then here’s our designer”. It’s just a flat rate cost for our team. We have highly talented, highly qualified individuals, across all the verticals of technology. You just have to budget, “It’s this much per hour”, and you’re going to have this many hours. We’re going to plan on that, for this many days, weeks, months, whatever it is.

Cris:

Time and materials is still extremely easy to budget for. Because you’re not just guessing. It’s not going to the grocery store, and shopping around, “Do I want the Safeway Select? Or do I want the name brand”.

Andrew:

Right. I think it’s worth mentioning too, and you touched on this. That we do have certain team members that are very specialized in certain things. Maybe in large scale system design. Or a sysadmin who’s going to tell you, “Okay, you need to set up like this on Heroku, or AWS”, and things like that. Or someone who’s going to be involved in dev ops, who might not be doing 40 hours a week for you, but you might want 10 or 20 hours a week to maintain your system, depending on the scale.

Andrew:

We can bring in people in varying capacities. You’ve got your developers, which tends to make up the lion’s share of the time. But then you’ve also got these specialists, who might help you for a month, setting up your database. Designing it to handle millions of users. Or the sys admin, who’s going to automate the continuous integration, or continuous delivery, and maintain that. But initially spend some time setting that up.

Andrew:

The whole staff aug model, the time and materials model like that, it allows us to be able to pull in the specialist you need, for the very specific scenarios you have, and then fade them back out into the background when they’re not needed at that time.

Cris:

If it’s something that is very straightforward and out of the box, we’re not going to reinvent the wheel, and we don’t necessarily need the time and materials, that we can focus it from a project standpoint, and say it’s going to be this much money, and this much time. But those features that are going to be more forward thinking, new, different, ingenious in some way. Or simply just unknown. We don’t know. No one’s built it before. It’s very difficult for me to say, “Hey Andrew, so this thing that no one’s ever built before, that you want to build? It’s going to be $100, and I’m going to have it done in an hour”. I don’t know.

Cris:

That’s where team velocity, that you’ve touched on, comes into play. It’s taking like minded tasks that we’ve done in the past, that could be similar to these particular tasks, and achieving somewhat of an understandable end date and cost delivery for that feature. Based off of what we’ve done in the past. Taking it more time and materials, as opposed to just fixed.

Andrew:

The more innovative the project is, the more it’s, they’re having to evangelize for it, and blaze a new trail, the more critical the MVP becomes. Because it’s so innovative, you don’t know how your customers are going to receive it. While the MVP is appropriate in most cases, most projects, I would say it is absolutely essential if you’re dealing with a very innovative project.

Andrew:

If it’s not innovative at all, you might want to ask yourself if you should be building it or not. Because there always should be some key distinguishing factor, that’s going to make what you’re building innovative, and different than what the other people are building. But it’s the question of, is it going to be five percent different? Is it going to be 100 percent different? Or most likely, somewhere in the middle.

Alexandra:

Thank you for joining us for this conversation about the difference between a fixed-bid project, and a time and materials ongoing contract with Bixly. If you have a project that you need help with, whether that be staff augmentation, or you’re ready to really dive in deep to project planning, don’t hesitate to reach out to us. You can find us at bixly.com, and set up a free consultation. Or if you have any questions about the stuff that we talked about today, feel free to leave those in the comments below. Until next time, this has been a Bixly Tech Tuesday.