Fixed Bid vs Time and Materials: Insights from Our Interview with Charly Leetham (Part 2)

Welcome to Building Better Developers, the Developer Nord podcast, where we work on getting better step by step, professionally and personally. Let's get started. Well, hello and welcome back. We are continuing our season of Building Better Foundations. We are Building Better Developers, the Developer Nord podcast. I am Rob Brodhead, one of the founders of Developer Nord, also the founder of RB Consulting, where we help you leverage technology to build a roadmap for success. Good thing, bad thing. Good thing is we are in holiday season. I am like planning out stuff for Thanksgiving and Christmas and things like that. The bad thing is that I also have a little mini vacation. I've got a week vacation, like a working vacation coming up, and so I'm planning things for that. And then we also have obviously Thanksgiving dinner and the stuff around that and all of our gatherings. And then we're going to be on a vacation in the second half of December. And so there's just too many cool things to do. Life is literally almost too good. But it's not so good that I can't spend a little time sharing it with Michael introducing himself. Hey, everyone. My name is Michael Molles. I'm one of the co-founders of Developer Nord. I'm also the founder of Envision QA, where we help businesses build reliable custom software by combining smart development with thorough testing so you can grow with confidence. Check us out at EnvisionQA.com. Good thing, bad thing. Like Rob said, we're getting close to the holidays and Thanksgiving. It's kind of a double blessing for us because it's my daughter's birthday on the 24th, which is usually Thanksgiving. But this year, it's the Monday before Thanksgiving. So we get to actually split it up and have a couple special dinners. And then I get to kick back and watch the doubleheader, the Lions play on Thanksgiving Day and enjoy my turkey. So we are continuing. This is part two of our interview with Charlie Leatham. And we will dive right into it. We're going to pick up right where we left off. So pencils up. Time to crank out some notes. That's an excellent answer. And actually, I'm going to flip it now because this is also the we also sit on the other side of it is so my favorite example is the customer that comes and says, you know, I want to build eBay and I've got a five hundred dollar budget or something like that. I want to build Amazon and I've got a thousand dollar budget or something like that. So what do you do in a little bit of this is sort of your thoughts on fixed versus time and materials type projects. And then when somebody comes to you with which you sort of laid out, like I want a website five hundred dollars or whatever their whatever their budget is. And I've got a hundred bucks to build a website or ten thousand dollars is how you approach those when it's whether it's time and materials or it's a fixed bid and in trying to hit their their have that conversation with them, I guess. I think the question there is fixed versus time and materials. How do you how would I approach it? If I can get a really solid scope of work, you are going to get five pages. Each page will have around a thousand words on it. It will have three or four images there. I don't have to do manipulation on these images. You're going to give me images. It's minimal manipulations. I don't have to go through and cut out backgrounds or do mergers on things. So figure and I get a really tight scope of work. If I can get a really tight scope of work that I can then point to and say, now you're asking me to do this thing and it's not in this list of things. That's when I do time and material. Sorry, that's when I do fixed price. Now, I will try to do fixed prices more often than I will try to do time and materials. I think that that surety for both for both parties for myself, knowing that this is what I'm going to get in the door and for my client saying this is what I'm going to spend and going to get what I want for what I'm spending. That is the goal for me. But it has to be that really, really tight scope of work. You've got to be able to sit down and write out exactly what those deliverables are. You need to be able to at the end of the project, put a tick next to each of them and say, this is what you got. If you can't, that's when you need to go down to, look, I need to do this on a time and materials basis. What I'm going to do is I and the way I approach it is what I'm going to do is spend an hour. I'm going to look at this for an hour and then I'm going to come back to you and say, look, I think I can do it for this price or I need another three hours or I need another four hours. Now that's putting the control back in the client's hands. They can say, no, stop right now. I don't want to spend any more money on this. This is I've hit my I've hit my appetite. But it's also giving me some level of protection against scope, blowout. It's never an easy answer. I would prefer if I'm doing time and materials or hourly based work to say, I think it's going to take two or three hours. Let me spend that amount of time and I'll come back to you and have a chat about where we're at. Yeah. Yeah. So I mean, then you get into coding projects and how do you put it? How do you put a tick in a box next to a coding project and say it's a fixed price coding project? That one you're going to have to sit down and look at some historical data and say, look, it normally takes me this long to write, do this type of project. If you don't know, then you should be doing that on a time and materials basis to start with and get your data together. But again, have that conversation with your clients around, I'm going to spend four hours, I'm going to get as much done as I can in that four hours. And then I'm going to come back and say, this is where I'm at. That's just my gut feel on that. It's always a bit of a. Yes. So say you've gotten into a fixed bid project and so I guess you might have already answered this, but if you've started with a fixed bid project and it's not like a website, but it is like a software project and you run into that issue where, OK, you're still within the requirements, but you're over on the time. Do you just keep that time box or do you somehow figure out how to get that back to a time and material? No, look, honestly, at that point, that's my problem. That's not my client's problem. They came to me, they asked for my expert opinion. I gave them my expert opinion. I'm just going to wear that. I know a lot of people don't do that. I may, depending on the relationship with the client, go back and say, hey, listen, this is going to take me a bit longer. And we talk about what I've got, what I've costed you versus what I'm actually doing. But if I have been overconfident with my own abilities, that's on me. That's not on you. And I'll use the analogy. If you take your car to the mechanic for an oil change and they quote you, I think it's $350 here for an oil change now. And it really is a case of, you know, they take the sump plug out, they drain the oil, put the sump plug back in, put fresh oil in. The guy they're using messes it up for whatever reason. It takes them four hours instead of the two hours. I'm not going to pay for their mistake. I'm not going to pay because the guy they had on didn't have the skill set. They quoted me $350. It is a defined deliverable. I'll pay $350. That's a learning experience that they can take in. I then take that information. I put it back into my systems. I put it back into my cost analysis. Have I got enough contingency? Have I got enough risk on my pricing? Have I overestimated on this? Have I underestimated on this? It all goes back into the pot of, yeah, next time I'm going to cost more. Or I've got all these new skills now that's going to actually mean I do it less. In fact, a great example I can give you on that. I'm seeing a lot of spam hitting forms again. It's just, it's this cyclical thing. You put a form up, you do all the right things, you get it locked down. Spam doesn't go through and then all of a sudden spam starts to ramp again. It's because they've worked out new ways of eating, feeding what you're already doing. That's smart of mice. And I spent hours on a client site, just locking it down again and working out what was working and what wasn't working and checking what forums were saying. I charged them a fraction of the amount of time I spent doing that job because I didn't think it was fair that they pay for me to do my learning. There is a point that you charge them to do a bit of learning, but I don't think I should charge them to do my learning. Then the next client came along the very next day and said, I'm having this problem. I said, no problems. I've got to fix it. Took me five minutes and I charged them a fixed price to do it. So that's where I got it back because I had all that new knowledge. I gave them what they considered to be a fair price. It was a fair price, but it wasn't that they didn't pay me for the two minutes to do the job. They paid me for the weeks worth of learning I had done before, basically. And that's where I'm at with that. What do you think? I'm kind of in a mixed boat right now. Recently, I've worked on a big fixed bid project that went way over budget, in part due to missed requirements and kind of missed opportunities with the client to understand what we thought we were building, wasn't really what we ended up building, or essentially what they wanted, really wasn't what they explained to us. Even at the point of delivering the application, we're still running into some things that are big ticket items that need to be done in order to get this out the door. I'm eating the cost because it's not their problem that I essentially missed all this up front. But it is pros and cons because when you go into a situation with the customer, to build them a custom piece of software, something that is for their business, for their day in and out, and if they can't explain it to you or they leave something out, you kind of run into that situation of, can you go back and ask for times of material on that, or is that your mistake for missing it? While there's opportunities to go back to the times of materials, it is hard because you missed it, or it was missed in the process, but it is a fixed bid and it needs to be completed as close to the fixed bid as possible without really negatively impacting your customer. It's on you, it's on the business. Hopefully, the next time you go out and find the next customer, you've learned from that and you know how to reset your expectations. It's six one half a dozen. I've had the same issues with the websites too, like you said. You go through, you build it, and usually those are better, but when you get into software building custom applications, it is more of a variable process and you're either going to be under or over if you go fix bid. Even with times and materials, you could still be over without really understanding it because of scope creep, or you just run into something that was unforeseen at the time of the investigation in terms of requirements gathering. If I might, you did a requirements analysis, like you sat down with the client and you went through that whole discovery process and you got a scope based on that, or did they come to you and say this is what we want? Kind of both. I had a premise of what they wanted from what the industry does, but they didn't need something as large as what some of the bigger players offer. So we came in with something a little more custom, a little more designed for them, and we sat down with them for almost a good three months going through their systems, requirements, their processes, and there was just information that was missed. I don't want to say necessarily withheld, but it's like muscle memory. It's things you do, but you don't think about, and those are the things that got missed. You didn't know to ask the question as to whether they did that or not. They didn't think to tell you that they did this because that's just what they do. I used to contract into government and we used to do that with government, and the amount of times I'd be there and we'd be pulling out a networking system and upgrading it and putting in something else, and then this totally unrelated system would go down. They're like, oh yeah, that's right. That connects in up here on this little spur that we forgot to tell you about. We've now got a complete network redesign. So yeah, I get it. It's such a hard question to answer though, isn't it? Because you want to be fair with your clients, but you still got to put the numbers on the table to be able to be there next month for them, next year for them. And that's right. Particularly with the software development types of projects, if it's something that's very small, that's bite-sized, you can say, okay, it's very easy to scope it, then that's great. And it is actually usually small. So it's something where you're like, it's going to take 40 hours, 100 hours, 10 hours, an hour, whatever it's going to be. And then you can figure out, for me, then I can figure out like, okay, this is what's going to make sense for a fixed bid. But once you get any bigger, a lot of times I actually, I attend more to the time and materials because software development is just that kind of a thing. And I tell them, I'll say, look, I can give you fixed bid, but fixed bid is going to be, for me to have the buffer that I need to make sure that, because there's going to be stuff that's going to happen, there's going to be changes, and I need to be able to make sure that I'm covered, then it's going to be probably far more expensive. So it's almost a blended approach, I guess, to that, as I found has worked pretty well. I'll say, okay, here's the estimates. Here's roughly what it's going to cost per hour. Here's roughly the amount of hours are going to go into it. And for example, let's just see picking some, it's like, I look at it and say, okay, it's going to be about a 500 hour project. Then I'll cost it out and say, well, here's what it's going to be. And I'll just be honest. I'll say, you know, usually I'll bump it up a little bit and say, okay, I'm going to assume that it's going to be a 550 hour project. And then say, so this is what we think it's going to be. And I'll say, now, if I can come in earlier, you know, lower, and so I'll tell them, maybe it's going to cost you 500, 600 hours, give them a ballpark and say, if I can come in lower, awesome. And then I'll also say, you know, I'll be able to build into that as we get close to it, maybe at 50% in or 75% in where I can say, all right, we're looking like we're on track or we're not going to be. And then even with the fixed bid, a lot of times I'm going to say, you know, even if it's not a fixed bid, but it's time and materials, there's going to be something I've put in their mind of a, a top end anyways, where it's like, okay, if I thought it was going to take 200, but now it's going to take 250 and it's basic, cause I just missed some stuff. Great. I'm just going to like, I'm just going to write that off. I'm not going to build them that if it's something, but even in those, I want to have enough requirements. It really does. It comes down to having the right requirements that you, everybody agrees. This is what we're doing. And this is what we're going to build. And going into that, a lot of times it does, I don't know how many times I've, I've had the conversation with the, the owner or the, you know, the senior management or something like that. And part of requirements gathering for me is always sitting down with the, the people that actually do it. And I don't know how many times I've been into that where I'm sitting with somebody that's like this is their job. They said, this is a tool they use. And then I suddenly, while watching them, they're like, oh, well, there's this other spreadsheet I use. There's this other thing I use. And now suddenly that it's that thing is you're like, yeah, it's not the requirements just changed because we had something that was very well defined. And you guys need to know that this thing over here is actually a critical part of your business. Yeah. And they don't even realize it. Like the business itself may not even realize it. And it's funny you say that I was talking to one of my team the other day and I went, oh, I need this information. And they sent me this spreadsheet and I went, what's this? Oh, well, I've been keeping this because I'm like, but I've got the CRM. Why are you, is this not on this module in the CRM? Oh, is that what that does? So they don't realize it because the staff themselves, there's two things that I find happen in that case. And we're probably digressing a little bit. There's two things I find happening in that case. One, the staff hate the tool and they absolutely hate the tool. They will not use it. They will do anything they can not to use it, which will mean that they create their own little shadow systems to do the job and then make it look like they're using the tool as much as they possibly can. So three things, in fact, they hate it. They haven't been trained on it. So they don't know how to use it. So they just end up doing other things because they look at, they go, we don't have the time. We can't understand it. We can't use it. Or the systems have changed around them, which is sort of related to number two. And they haven't been brought up to date. They haven't got the memo to say, no, now we're doing it this way. They haven't got the updated process. They haven't got the updated policy. And they're still using a system that they were using five years ago because, well, that's how we've always done it. What do you mean it changed? When did that happen? That is always the kiss of death. We're like, well, that's the way it's always happened. Okay. Well, then let's really explore that because maybe the way we've always done it has changed. Just like a website, as you mentioned, you put a website out there. It needs maintenance. It needs touching up when anything that you do, your employees will need that as well. They need like regular educational updates, training, things like that as well. So they can know how to use the new version of the systems and things like that. This is flown by super, super fast. We didn't even get like, the problem is we did, we got off on the AI trail and we got really deep into that. But there's just, there's, and there's so many other things we could go into, but before, you know, I don't want us to run out of time without, I know everybody else listening would love to like, you know, work with you, hear more about you, learn more about you. So what are some of the best ways for them to reach out and contact you? My website, askcharlieleatham.com. If you put connect hyphen to hyphen me or connect, yeah, connect to me with the hyphens between the little minus signs, you'll get to my contact page. But even if you just go to my website, you'll find, you'll find me there. I'm basically on every social media platform, bar, TikTok. You won't find me on TikTok, but you'll find me on LinkedIn, Instagram, Facebook and X. And that's all on my website. If I run my own community, askcharlieleatham.locals.com, you're welcome to come and join there. And that's for business owners who just want to get a better handle on their tech in a, in a safe environment. I shouldn't say that. You know, just where you want to ask those questions of this isn't working, how do I do it? Or what do I do here? That that's, I'm trying to grow that one for business owners to come in and have those conversations with me and with each other, because they, there's heaps of information between each other that they can share as well. Um, yeah, there's my podcast that goes out every other day, askcharlieleatham.com slash podcast. You can listen to me there. Listen to me prattle on about this sort of stuff every other day. So what do you, is that, is that simply you, do you have guests on there or you just, you sort of go through some of your, your, your pains of the moment? So every other day is pretty much pangs of the moment. It's, it's me prattling on about, you know, this is, I'm seeing this, I'm doing this. If I, if I, you know, if there's nothing that's really topical, I've got a whole set of topics that I like to run through. For example, I've done a whole series on Microsoft M365 and how to set up your mail and the things to do and the, the quality of life settings you can do, how you can delegate a message, an email box, how you can create shared mailboxes, those sorts of things. So I try to do little topics within the, within the podcast itself. And every now and again, I have a guest on and, you know, we'll sit for an hour and just have conversations like this. And they're, they're always fun. They are always fun for me. Yeah. I can, I can tell these have always been great. I, I prepped you beforehand and said that we've never had a bad guest and you are not the first. So you're not going to be the one that's suddenly be our bad guest. This has been, this has been incredible. Like I said, it's, it's almost frustrating because there's so much else that we could talk about. So I really appreciate your time and your energy and, and wandering with us as we have wandered through this, this conversation of the last hour or so. Michael, any closing thoughts? I just want to thank you. It's great having this conversation with you and getting your insight, especially on, you know, fixed made versus, you know, time and materials. And hopefully we'll have you again on the show. I would, I would love to come back and hey, I really enjoyed that conversation. That, that was a really one good one for me because it really helps sort of just get that mind going about where am I at? What am I doing? How do I do it? Is this something I need to go back and, and review for myself? So thank you. Yeah, those are, and that actually that goes to your community, anybody that's, you know, out there that's listening, I think I definitely recommend any, you know, this her community or something like that, because these kinds of conversations are the ones that do really help as a, as an entrepreneur, as a business owner is to just hear other thoughts because it is, it's the kind of things that we get into. It's like, well, that's, I'm doing that the way, because that's the way I've always done it, or that was the way I taught it. And then you realize that, Oh, there's some other approaches. And the next thing you know, you're going, huh, I wonder if I should maybe, you know, embrace that a little bit or research that a little bit more. So it is some of the best way to learn is sometimes the best way to learn is learning from the, those successes, but also mistakes of others and making sure that you can, you know, carve your own path built on top of those. Absolutely. Look, thank you so much. So we'll wrap this one up. Thank you so much for your time. We appreciate you and hanging out with us for a while. Everybody as we will have the links in the show notes and we will be back with another episode before you know it. But thank you so much for your time and have a good rest of your day.