We work exclusively with T&M contracts. The reason being that flat bid contracts are too difficult to manage unless the scope is airtight (which it rarely is). For more reasons on this, take a look at our blog post:

7 Reasons You Should Charge by the Hour
http://www.myintervals.com/blog/2008/03/04/7-reasons-you-should-charge-by-the-hour/

Real interesting post. I just stumbled on it a year later.

You mentioned T&M contracts. In what circumstances does your firm use fixed price contracts and when is it best to use T&M?

K

The plus 15% is never the result of an error, nor is it refundable. The plus 15% is usually caused by subtle changes in scope, integrating third-party tools taking longer than expected, or sometimes the project just takes a little longer than we thought it would.

Also, the 15% doesn’t come as a surprise to the client at the end of their project. Because we thoroughly track our time we usually alert the client when a project is threating to go over budget.

The whole point of the plus or minus 15% is to cushion an estimate that is not going to be 100% right on. Estimates are exactly that, estimates, a best guess at how long something will take. We are simply stating that we have estimated the project within a 15% range of accuracy.

As for the PM hours, those are never easy to explain to the client. We usually add them in as a percentage of the entire project and explain to the client they are non negotiable. In the past when a client as tried to cut PM or QA costs from a project, the project always suffers and is delayed or runs over budget due to not being managed properly.

It’s not easy but you have to hold your ground with clients and explain to them which aspects of a contract are negotiable and which aren’t. And when it comes to the estimate, explain to them that it is only an estimate. Projects will most likely change during their development and both you and the client need to understand that and be prepared to handle it contractually.

Also, we face issues when we mention PM hours and cost explicitly, so we include it within the modules. This way we avoid clients seeking for cutting the PM cost and give us a reduce rates. This is really difficult.

Whether you flat-bid or bill hourly, the ability to accurately estimate projects is crucial for delivering within budget and avoiding client disappointments. Follow these four steps to create accurate estimates when quoting your next project….