SDPM - Lecture 10 - Contract management

Leiden Institute of Advanced Computer Science

System’s Development and Project
Management –
Contract management

Prof. Dr. Thomas Bäck

1


Outsourcing

Benefits: Remaining risks:
!   Potential time reduction !   Outside transfer of
!   Cost savings – expertise
economies of scale !   Loss of control over
!   Risk reduction future development
!   External expertise: !   Compromise of
!  Specialized developers confidential information
!  Library of resuable code !   Loss of progress
visibility and control

2


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
3


Offshore outsourcing

!   Communication
!  Language
!  Problem of lines and bandwidth
!   Time differences
!   Travel time and expenses
!   Characteristics of vendors’ country
!  Copyrights/patents/intellectual property laws

4


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

5


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

6


Time and materials contracts

Advantages to customer
!   Easy to change requirements
!   Lack of price pressure can assist product
quality
!   Preliminary estimate of overall cost

7


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

8


Fixed price contracts

Advantages to customer
!   Known expenditure
!   Supplier motivated to be cost-effective

9


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

10


Fixed price per unit delivered
D esign
Implementation

FP
count
Total
cost/FP

cost/FP
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

11


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?

12


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

13


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?

14


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)

15


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

16


Stages in contract placement
Requirements
analysis

Evaluation
plan

Invitation to
tender

Evaluation of
proposals
17


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

18


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

19


Evaluation plan

!   How are proposals to be evaluated?
!   Methods could include:
!  Reading proposals
!  Interviews
!  Demonstrations
!  Site visits
!  Practical tests

20


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?

21


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

22


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
23


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

24


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

25


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

26


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

27


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

28


This is the End !

Thank you !

29

SDPM - Lecture 10 - Contract management

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SDPM - Lecture 10 - Contract management