Some companies complain that vendors don’t support them with “Agile way” of delivery.

The reality is that many companies are only able to engage vendors on a fixed price (FP) type of contract. However, the companies are expecting the vendors to work in a Time & Materials (T&M) style instead. This is riskier for the vendors and, if they agree with this type of approach at all, they would have to compensate this risk by increasing their price for service.

Volume of Work (VoW) type of contact could be a good solution to this challenge. (Link to website)

If your Agile project delivery teams don’t have required skillsets and you need to engage a vendor to feel in the gaps, find out if your company policy permits (and your vendor accepts) T&M type of contract. If not, you may need to consider alternative options. One of the options could be a Volume of Work (VoW) type of contract.

For Volume of Work:

  • Identify missing critical skillset to deliver defined user stories;  
  • Estimate the required level of vendor support (in story points) based on current priorities;

The sum of Story points could then be considered as volume of work and converted into effort (and duration) based on the productivity rate of a resource assigned to deliver tasks.

Productivity Rate = Story points per resource per Sprint / Days in Sprint;

Cost of engagement = Story points  * Productivity Rate * Resource Daily Rate;

A vendor may be able to offer required skillset with different Productivity rate, Daily rate and Available capacity. If resources with different productivity available, the cost of the engagement should reflect that.

In this case, the Story points definition would have to include the productivity rate as well.

For example, if resource 1 is assigned, then the task is estimated at 5 story points. If resource 2 is assigned, then the task is estimated at 8 story points.

Another option could be to estimate story points based on the resource with the highest productivity, and then to adjust the velocity of each sprint when resource with lower productivity needs to be assigned.   

Cost of engagement = Story points (R1) * R1 productivity rate * R1 daily rate + Story points (R2) * R2 productivity rate * Rdaily rate;

This proposed VoW type of contract would allow to sign a Fixed Price contract based on planned volume of work (based on planned story points), but would support Agile delivery with periodic reprioritisations.

Vendors should be able to receive payments based on the completed volume of work (delivered story points) after each sprint or a number of sprints.

The contract may also include earlier exit conditions for a vendor, in case the project is put on hold.

As the risk in VoW contract is shared between a project and a vendor, the vendors would be ready to supply resources at a lower rate comparing to the Fixed Price Contract. 

Alex Lyaschenko

PMO | Portfolio Planning & Delivery | PMP | P3O Practitioner | AgilePM Practitioner | Six Sigma