What type of software development agreement should you choose? A flexible contract where you don’t need to commit to any minimum hours might seem appealing.
Here are six factors why you might reconsider a deeper cooperation with your software development firm, using a “monthly minimum hours clause”:
When you commit to a fixed contract – also called Dedicated Minimum Hours (DMH) contract – you will be charged a discounted hourly rate.
During your first two months with a new DMH resource, there won’t be any notice period. So if you sign a DMH on 1 August you can cancel the contract without notice until 30 September.
So you can evaluate your new dedicated resource during this “trial period”. You will be charged the same discounted hourly rate during this trial.
Great talent is always in high demand and has the highest impact on ensuring the success of your project. If you can’t provide steady work, the developers with the know-how of your project might need to be reallocated.
Getting the developers with the know-how of your project back might not be possible if they’ve become tied up in another long-term project. Or at least it can take time to get them back, causing delays that impact your business.
You can ensure that the developer can immediately take over any new assignments during the working hours by hiring a full-time resource.
If you reserve a half-time resource, they can typically start any new task within the next working day.
A Dedicated Minimum Hours (DMH) contract increases your value to your software developers. Software development firms are more likely to go the extra mile for their best clients.
You also increase your negotiation power, without necessarily losing anything. When the firm gives notice of future rate increases, you might be able to stay on the previous rate for longer.
A steady but limited number of development hours per day will push you to plan and prioritize the absolutely highest value features (High Impact Low Effort features). It prevents “feature-creep”.
You avoid wasting time and money on low-value features that you might not have needed in the first place. Plan long-term with a to-do list/backlog.
If you need many features implemented and have a regular flexible hours contract, the costs can go high fast. It might take time to verify all work done.
With a DMH contract, you will get a clearer picture of how many hours will be spent each month. You can easily plan for and fit in the review of deliverables in your schedule. You won’t overspend.
With a DMH contract, you are obliged to buy a minimum number of working hours every month. We have three different versions of DMH contract to suit your needs.
Regardless of DMH contract, the resources will be billed hourly. You would only pay for the actual hours clocked if the developers fall short to meet the DMH hours for any reason (such as illness).
Even if you sign up for a DMH contract, you can still request extra hours from the dedicated/other staff as required, depending on availability.
There’s always a lot that can be done, and some tasks make it easier and faster to add new features in the future, resulting in this maintenance being somewhat of an investment:
With a DMH contract, you agree to compensate the development firm whether or not the development firm is instructed by you to perform services or not.
So you should make sure there’s planning and some sort of to-do list to work on. There’s also a notice period, typically two calendar months.
At LiteBreeze, we often offer and/or require a dedicated minimum hours clause once:
Erratic demand can be costly in terms of idle time and scheduling difficulties.
Contact us for developer profiles and a software development agreement sample.
If you need to lay the foundation of a new system, you can also opt for a project planning phase (pre-study) where senior project leaders will guide you.
Q: Is a DMH contract similar to a retainer contract?
A: Not really. It’s a type of recurring retainer contract however you don’t have to pay in advance.
Q: How much do I save?
A: Roughly 10% compared to a time and material model.
Q: What is the notice period?
A: Typically two months.