We talked about a situation where billing happened periodically inspite of the final product being a work-in-progress. We called it an outcome based or event based billing.
But was it really an outcome / event based billing? Technically the answer is no. This type of a billing is stage based billing, where based on the stage of completion of the final product advance / periodic billing is done.
In some situations, your client may also use a different basis for this type of billing. This is especially prevalent in both construction and heavy engineering companies. The basis of billing could be “Time & Material” invested in the product / final deliverable.
Time & Material billing is resorted to when the project scope, specification and implementation plans cannot be precisely defined at the outset or requirements may change dynamically during the project implementation process. Here the contractor is paid on the basis of actual cost of direct labour, usually at specified hourly rates, actual cost of materials and equipment usage and agreed upon fixed add-on to cover the contractor’s overheads.
Then what actually is outcome or event based billing? Watch out for the next post.
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