Breathing new life into the waterfall model

Imagine that you are in the market for some custom software. You’ve issued an RFP, prohibited any contact between bidders and your organization, and demanded a single price for the whole effort. In response, one of the prospective contractors pitches you the following scenario. “For US$35,000,” the contractor’s account executive says, “an cross-functional team of our best people will work with you for two weeks to define the opportunity, plan your future method of operations, write some thin requirements, and develop a simple prototype of the user interface. At the end of that period, we’ll probably offer you a proposal for doing the next stage of the work at a fixed price and within a fixed schedule. But we do reserve the right not to bid on the next stage.” Should you be disgusted by the contractor’s insolence or delighted with their savvy approach? Many customers have come to believe the latter. The approach behind the pitch given above goes by many names, including staged contracts and milestone-based development. Staged contracts are often used in an approach commonly called rapid applications development [1, 3]. (James Martin defined Rapid Application Development (RAD) in [2] as a particular set of tools and methodologies, but the term has since become a watered-down, overused buzzword.) In this column I want to focus on the contracts and pricing policy used by companies such as Bellcore, Cambridge Technology Partners, Keane, and Sapient as part of their rapid applications development methodology. These companies have enjoyed significant, even explosive growth in their rapid apps divisions, and assign much of the credit to the processes that they use. I claim that staged contracts, while clearly inappropriate for some, offer an excellent choice of life-cycle model for many projects. A staged contract for custom software development means that the work is con-