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Guest post - sectoral differences in pricing financial model builds

Posted by Peter Gillon

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I enjoyed the Fixed Price ebook. It was a very well written and explained point of view, and a very solid, intellectually reasonable argument for working in sprints, not closed loops.

I worked on one modelling assignment for 12 months which involved 3 separate submissions. Each one was a controlled submission i.e. take account of everything we tell you now, but nothing more until the next submission.   

In my experience, having worked in bids for both private and public sectors, there are 2 segments:

1. The “Agile” approach works well in situations where no one knows the outcome (end point or route to completion), and it is apparent to both parties that no one knows what the outcome will be. It’s therefore unreasonable to expect a provider to take the delivery risk when the customer doesn’t know what the end point is. In this case both parties can “go on the journey” together, make discoveries on budgets and risk, and design the best solution before committing to contract. Sort of a “proof of concept” stage.         

2. Where one party thinks they have a fair idea of the end point , and route to get there , (or where they are just turning a blind eye to the uncertainty), they are more likely to demand a fixed price.  The public sector often has more proscribed purchasing processes, and these often preclude a collaborative approach from the start.  

In one public sector cycle, the bid team I was with found that the client had omitted an important segment of activity from the work specification. We couldn’t add it to our bid model, even though we needed to, as it would have added extra cost and we were still in a competitive tender situation. To avoid being disadvantaged, we came up with the solution of feeding the missing process back in via clarification questions such as, “Process x, (currently not included in the scope of work) currently takes 12 people. Does the client intend to keep this process in house? If so should the cost of the team be added to the contract management team price or excluded?”  

The response we received was “Suppliers should exclude any workload related to process x, in this stage of the bidding cycle, but not its impact on employment costs. Addendums to the scope of work will be issued in the next stage”.

 

Fixed price financial modelling contracts
Peter Gillon is an FCMA & CGMA qualified freelance Financial Trainer, with extensive private sector commercial experience.
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