sdpm - lecture 10 - contract management
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System’s Development and Project Management – Contract management
Prof. Dr. Thomas Bäck
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Outsourcing
Benefits: ! Potential time reduction ! Cost savings –
economies of scale ! Risk reduction ! External expertise:
! Specialized developers ! Library of resuable code
Remaining risks: ! Outside transfer of
expertise ! Loss of control over
future development ! Compromise of
confidential information ! Loss of progress
visibility and control
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Outsourcing (cont‘d)
! Management plan incl. risk management ! Contract management ! Regular vendor communications ! Count on using some of your own technical
resources ! Be leery of unstable requirements ! Retain sufficient control to pull work back in-
house if needed ! Avoid double standards
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Offshore outsourcing
! Communication ! Language ! Problem of lines and bandwidth
! Time differences ! Travel time and expenses ! Characteristics of vendors’ country
! Copyrights/patents/intellectual property laws
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Acquiring software from external supplier
This could be: ! A bespoke system - created specially for the
customer ! Off-the-shelf - bought ‘as is’ ! Customized off-the-shelf (COTS) - a core
system is customized to meet needs of a particular customer
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Payment methods
! Time and materials contracts ! Fixed price contracts ! Fixed price per delivered unit
Note difference between goods and services Often license to use software is bought rather than the software itself
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Time and materials contracts
Advantages to customer ! Easy to change requirements ! Lack of price pressure can assist product
quality ! Preliminary estimate of overall cost
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Time and materials contracts (cont’d)
Disadvantages ! Customer liability - the customer absorbs all
the risk associated with poorly defined or changing requirements
! Lack of incentive for supplier to be cost-effective
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Fixed price contracts
Advantages to customer ! Known expenditure ! Supplier motivated to be cost-effective
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Fixed price contracts (cont’d)
Disadvantages ! Supplier will increase price to meet
contingencies ! Difficult to modify requirements ! Upward pressure on the cost of changes ! Threat to system quality
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Fixed price per unit delivered
FP count Design cost/FP
Implementation cost/FP Total cost/FP
to 2,000 $242 $725 $967
2,001-‐ 2,500 $255 $764 $1,019
2,501-‐3,000 $265 $793 $1,058
3,001-‐3,500 $274 $820 $1,094
3,501-‐4,000 $284 $850 $1,134
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Fixed price/unit example
! Estimated system size 2,600 FPs ! Price
! 2000 FPs x $967 plus ! 500 FPs x $1,019 plus ! 100 FPs x $1,058 ! i.e. $2,549,300
! What would be charged for 3,200 FPs?
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Fixed price/unit contracts
Advantages for customer ! Customer understanding of how price is
calculated ! Comparability between different pricing
schedules ! Emerging functionality can be accounted for ! Supplier incentive to be cost-effective ! Life cycle range
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Fixed price/unit contracts (cont’d)
Disadvantages ! Difficulties with software size measurement -
may need independent FP counter ! Changing (as opposed to new) requirements:
how do you charge?
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The tendering process
! Open tendering ! Any supplier can bid in response to the invitation
to tender ! All tenders must be evaluated in the same way ! Government bodies may have to do this by local/
international law, e.g. GATT (UNO, General Agreement on Tariffs and Trade)
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The tendering process (cont’d)
! Restricted tendering process ! Bids only from those specifically invited ! Can reduce suppliers being considered at any
stage ! Negotiated procedure
! Negotiate with one supplier, e.g. for extensions to software already supplied
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Requirements analysis
Invitation to tender
Evaluation of proposals
Evaluation plan
Stages in contract placement
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Requirements document
! Introduction ! Description of existing system and current
environment ! Future strategy or plans ! System requirements
! Mandatory/desirable features ! Deadlines ! Additional information required from bidders
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Requirements document (cont’d)
! Requirements will include ! Functions in software, with necessary inputs and
outputs ! Standards to be adhered to ! Other applications with which software is to be
compatible ! Quality requirements, e.g. response times
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! How are proposals to be evaluated? ! Methods could include:
! Reading proposals ! Interviews ! Demonstrations ! Site visits ! Practical tests
Evaluation plan
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Evaluation plan (cont’d)
! Need to assess value for money for each desirable feature
! Example: ! Feeder file saves data input ! 4 hours a month saved ! Cost of data entry clerk £20 an hour ! System to be used for 4 year ! If cost of feature £1,000, would it be worth it?
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Invitation to tender (ITT)
! Note that bidder is making an offer in response to ITT
! Acceptance of offer creates a contract ! Customer may need further information ! Problem of different technical solutions to the
same problem
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Memoranda of agreement (MoA)
! Customer asks for technical proposals ! Technical proposals are examined and
discussed ! Agreed technical solution in MoA ! Tenders are then requested from suppliers
based in MoA ! Tenders judged on price ! Fee could be paid for technical proposals by
customer
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Evaluation of proposals
! Management considerations: ! Vendor ability to meet budget and schedule
commitments ! Project management capabilities ! Confidentiality issues, e.g. serving competitors ! Supply of product support
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Evaluation of proposals (cont‘d)
! Technical considerations: ! Evaluation of software-development capability ! Expertise in application area and implementation
environment ! Support of further enhancements
! General considerations: ! Financial stability ! Contract development as primary line of business
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How would you evaluate the following?
! Usability of an existing package ! Usability of an application yet to be built ! Maintenance costs of hardware ! Time taken to respond to requests for
software support ! Training
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Typical contract terms
! Definitions ! Form of agreement
! Sale/lease/license
! Goods and services to be supplied ! Environment – defining responsibilities ! Customer commitments ! Standards and acceptance procedures ! Timetable ! Price and payment method
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Contract management
! Contracts should include agreement about how customer/supplier relationship is to be managed, e.g. ! Decision points - could be linked to payment ! Quality reviews ! Changes to requirements
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This is the End !
Thank you !
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