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09 Jun 2012 08:35 GMT • 2 responses
Outcome-based model for new devleopment product
is outcome-based contract appropriate for new mission-critical new development products that will require service throughout the products lifecycle. And how should the customer structure the agreement with the product developer (contractor)
Edward Willey III
12 Jun 2012 10:57 GMT
Interesting question. I am not sure that the service element changes the answer. Rather, I think that the "development" element is the critical piece. The greater the responsibility of the developer, the more likely he is to accept this type of contract commitment. If, however, the client controls the determination of "wanted" features and functionality, and also dictates a number of technical requirements as to the implementation of the functionality, then you will have a harder time persuading the developer.
Of course, this is just one opinion.
12 Jun 2012 15:56 GMT
A key challenge with a new product must be the extent to which you can accurately predict performance. Certainly there are examples of performance based commitments for new products, but in general where there have been rigorous testing programs.From teh customer perspective, where there is no reliable record of service requirements, it is perhaps hard to estimate whether outcome-based represents superior value; on the other hand, it does give you predictable cost and of course might represent very good value (if service issues turn out to be significant). I guess you might want to include in-service benchmarks into your contract to determine real costs versus charges - though recognizing this could lead to pressure form the supplier for a price increase if they under-estimated.