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Rajah Lehal

Software Development/Master Services Agreements Part III: Fee Estimates/Quoting/Fee Caps/Fixed Fee

August 01, 2016

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In a previous post, we discussed how payment in a software development agreement as a Master Service Agreement (MSA) may be separated into phases and various clauses that can protect either party. Now we will discuss the forms of payment that are generally used.

The two most common structures of payment are “fee estimates” and “fixed fee quotes”.

FEE ESTIMATES A fee estimate is generated to give the client a general idea for where the ultimate cost may be but it could be subject to change. A quote is normally given to declare the total cost upfront. It could be considered “fixed fees” as well. A fee estimate allows the developer to have a little more freedom in operating away from deadlines, to an extent. It also benefits the client in cases where their project is simple and the software developer has experience in that field. In this case, the consultant is typically paid “fees” either monthly, daily, or hourly based on time actually worked. This allows the software developer to change their initial estimate and generate a lower estimate.

FIXED FEE QUOTES A fixed fee quote quote benefits the client as it allows them to plan their finances and expectations. If the developer extends past the deadline, the client will be not be charged for that additional time. For the developer, it allows for easy pricing based on factors like past projects, and eliminates the administrative burden of time tracking (which could slow down billing). For a developer that works fast, on possibly “cookie-cutter” or “commidity” work i.e. a project that is similar to one that they have worked on previously which allows for completion well before the deadline or work perfomed by junior team members, this could result in a grin.

FEE CAPS The vendor may agree to a “capped” fee for a specific phase of the work performed, which is especially useful if the work is potentially “contingent”, for example, for a transaction that has the possibility of not proceeding. The form and structure of payment that best suits your needs can help smooth any conflicts that may arise over unclear terms.

To continue reading additional articles within this series, click here.

Commercial Activities
Master Services Agreement
Software Development

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.