How to structure vendor payment method
I’m creating a consortium of vendors who will build shared IT systems for government, so that government benefits by lower costs by collectively purchasing the systems. Examples include inventory systems and municipal parking management systems. www.gov-ideas.com
Can you please identify pros and cons of different methods for paying vendors?
1. Total payments completed at end of project. Something like 25% down, 25% after some deliverables, 25% after more deliverables, and 25% after client acceptance. PROS: This will help vendor cover expenses and stay in business. CONS: Vendor may become complacent if they have received most of the payments, and push back/dispute unfulfilled requirements.
2. Five year payback period begins after project is completed, and if possible, is transaction based. Transaction based means if the client gets fees from the software, client gives a percentage of the fees to the vendor until the software is paid off. For example, if it is a municipal parking management system, then a portion of the parking ticket revenue would go to vendor as it is collected. Many systems will not be transaction-fee based and will have a straight 5 year payback. PROS: (a) Cash-strapped governments will be able to afford a system easier without huge initial outlays of money required (b) Vendors will be less likely to become complacent regarding fixing bugs and updating the system in order to keep the payments coming. CONS: Vendors might go out of business without upfront money to pay their software developers.
Any alternative suggestions welcome.
Thanks,
Alex Glaros
Center for Government Interoperability
http://www.gov-ideas.com
Email and phone: http://www.gov-ideas.com/contact.htm
Can you please identify pros and cons of different methods for paying vendors?
1. Total payments completed at end of project. Something like 25% down, 25% after some deliverables, 25% after more deliverables, and 25% after client acceptance. PROS: This will help vendor cover expenses and stay in business. CONS: Vendor may become complacent if they have received most of the payments, and push back/dispute unfulfilled requirements.
2. Five year payback period begins after project is completed, and if possible, is transaction based. Transaction based means if the client gets fees from the software, client gives a percentage of the fees to the vendor until the software is paid off. For example, if it is a municipal parking management system, then a portion of the parking ticket revenue would go to vendor as it is collected. Many systems will not be transaction-fee based and will have a straight 5 year payback. PROS: (a) Cash-strapped governments will be able to afford a system easier without huge initial outlays of money required (b) Vendors will be less likely to become complacent regarding fixing bugs and updating the system in order to keep the payments coming. CONS: Vendors might go out of business without upfront money to pay their software developers.
Any alternative suggestions welcome.
Thanks,
Alex Glaros
Center for Government Interoperability
http://www.gov-ideas.com
Email and phone: http://www.gov-ideas.com/contact.htm
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