Why I Do Not Use a Fixed Price Labor Contract Anymore

Today I currently use an hourly contract for my custom software engagements. I have done it this way for about 2 years now. Before that, I used a fixed price contract for my software design projects. I switched to hourly, because I was running into too many problems to continue with a fixed price contract. It was simply no longer worth it anymore.

Why

The following are the reasons why I would ditch a fixed-price labor contract:

  1. They usually attract the wrong people.
  2. I can't make money from working for the wrong people.
  3. The risk for disagreements over how much work should be done goes up.
  4. The risk for liability exposure goes up.
  5. My out-of-pocket expenses for headache medicine goes up.

I used a fixed price labor contract for a long time thinking I could “trial and error my way” to some kind of method or technique that allowed me to stay in control of things so I would be paid in proportion to the amount of work I actually did. I tried all sorts of little ideas. Some worked a little better than others, but none of them really worked.

In 2013, I had a bad run-in with someone who tried to take advantage of me in a big way. Because of that experience, I had an epiphany and realized I finally had to cut over to an hourly billing system to attract the right people. I came up with the idea you see in my "Terms Of Service" web page at “Billing Policy”. I paid my attorney $450 to help me round out the legal side of it in my new labor contract at “Analyzohio Software.com”. He told me he liked my new billing idea. If a lawyer likes the idea you came up with to protect yourself from unreasonable people, then it must be a good one.

Using a fixed-price labor contract for an endeavor as subjective as designing software is fraught with peril. The people tend to be bargain hunters who go into it thinking they can weasel their way to a lot of extra work since their feet are not being held to the “fire of a professional hourly labor rate”. They typically try to get extra work that was never part of the deal. They argue when I don't want to give it to them (and potential liability exposure goes up). Another problem is they will make me redesign the same patch of programming over and over without any consideration for the value of my time. It turns into such a rat race that I'm much better off rejecting it and instead channeling that time into marketing myself to the right people.

I have read posts on the internet from people who say you should use a fixed price labor contract instead of billing by the hour for software projects. They say it is easier to attract customers and I agree. They must be extremely lucky in the sense that every one of their fixed price labor contracts always attracts the right customer who will pay in proportion for the amount of work needed. I wish my luck was that consistent and steady, but it isn't, hence my hourly labor contract.