| What type of contract should be used for the system specification phase? Should it be Firm Fixed Price (FFP), Cost Plus Fixed Fee (CPFF), or Time and Materials (T&M)? This really depends on the stakeholder environment and the complexity of the application to be developed. FFP contracts can be utilized successfully for the first phase for projects with the following characteristics: The stakeholders are easily identified, colocated, and accessible to the project team. The project's scope is well known. The organization's business process is well known and stable, and stakeholders are in general agreement on their business process. The technologies anticipated for use on the project are well known and stable.
These projects are quite straightforward. At the other extreme, some system specification contracts are better served with CPFF or T&M contracts. The conditions making these contract types more suitable are mostly the opposite of the conditions for FFP system specification contracts. I will elaborate a bit on each condition: The stakeholders are not easily identified, are geographically distributed, or are inaccessible to the project team. Software systems in which users are scattered over a wide area present additional challenges. Some of these challenges are obvious, such as the travel and overhead required to work with the stakeholders. Others are less obvious. I have worked on several small projects (two or three developers on a one-year project) in which the stakeholders were scattered over more than 50 cities across the U.S. The outsourcing organization at the headquarters location believed that the system's stake-holder needs were identical regardless of the users' locations, since all stakeholders worked in the same logical organization, performing the same job. It was discovered that significant variations in the business process at each location were unknown to the headquarters location, where the system was being developed. The project's scope is not well known. If the outsourcing organization is unclear what functionality is to be developed or automated, this means that the analysis work required is unclear as well. Accordingly, T&M or CPFF contracts are more appropriate. The outsourcing organization's business process is not well understood or is unstable, or the stakeholders do not agree on their business process. It is not uncommon for stake-holders to disagree on certain details of a business process. But widespread disagreement indicates that a significant amount of work may be needed, or perhaps the business process needs to be changed. This means that the contractor must tread into sensitive territory, where it may not be possible to fully anticipate the amount of time and number of resources needed to address the issues. These efforts should not use FFP contracts. At first glance, the technologies to be utilized on a project may appear to be more of a Construction phase issue. But remember the goals of the Inception and Elaboration phases. If the technologies involved affect the architecture of a product to be built, they will be addressed directly in the Elaboration phase and, therefore, are covered by the contract's system specification phase. It may be necessary to conduct trade studies and possibly build prototypes to explore the technologies further to better identify the risks. Unless it is possible to determine up front exactly what additional activities are needed to fully identify the risks, CPFF or T&M contracts are more appropriate.
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