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Exhibit 3: Sample fixed price agreement

A sample of wording to be used in a fixed price agreement, with explanatory notes.

This 'exhibit' relates to the third part in the series of articles 'Pricing on purpose: how to implement value pricing in your firm', by Ronald J. Baker.  

November 19, 2015

Dear Customer:

In order to document the understanding between us as to the scope of the work that ABC, CAs will perform, we are entering into this Fixed Price Agreement with XYZ, Inc. To avoid any misunderstandings, this Agreement defines the services we will perform for you as well as your responsibilities under this Agreement.

2016 PROFESSIONAL SERVICES
ABC will perform the following services for XYZ during 2016:

  • 2015 XYZ Corporation Tax Returns
  • 2015 Financial Statement Audit with PBCs to be provided by XYZ by March 15, 2016
  • 2016 Tax Planning
  • Unlimited Access in 2016* 


TOTAL 2016 PROFESSIONAL SERVICES $XXX
*Included in the Unlimited Access are the following services to be provided by ABC to XYZ:

  • Unlimited meetings, to discuss operations of XYZ, business matters, tax matters, and any other topic at the discretion of XYZ or its employees and/or agents.
  • Unlimited phone support for XYZ personnel and/or independent contractors and agents regarding accounting assistance, tax issues, etc.

Because our Fixed Price Agreement provides ongoing access to the accounting, tax, and business advice you need on a fixed-price basis, you are not inhibited from seeking timely advice by the fear of a meter running endlessly. Our service is built around fixed pricing, as opposed to hourly rates, and offers you access to the accumulated wisdom of the firm through professionals with substantial experience, who can help enhance your company’s future and achieve its business objectives.
While the fixed price entitles your company to unlimited consultation with us, if your question or issue requires additional research and analysis beyond the consultation, that work will be subject to an additional price, payment terms, and scope to be agreed upon before the service is to be performed, and a Change Order will be issued to document this understanding.

Unanticipated Services
Furthermore, the parties agree that if an unanticipated need arises (such as, but not limited to, an audit by a taxing agency, a financial statement audit or compilation required as part of a lender financing agreement, or any other exogenous service not anticipated in this agreement by the parties) that ABC hereby agrees to perform this additional work at a mutually agreed upon price. This service will be invoiced separately to XYZ utilizing a Change Order.

Value Guarantee
Our work is guaranteed to the complete delight of the customer. If you are not completely satisfied with the services performed by ABC, we will, at the option of XYZ, either refund the price, or accept a portion of said price that reflects XYZ’s level of value received. Upon final payment of your invoice, we will judge you have been satisfied.

Price Guarantee
Furthermore, if you ever receive an invoice without first authorizing the service, payment terms, and price, you are not obligated to pay for that service.

Payment Terms
The following payment terms are hereby agreed to between XYZ and ABC:

 January 31 2016
$XX
 February 28 2016
$XX
 March 31 2016

$XX

 April 30 2016
$XX
 May 31 2016
$XX
 June 30 2016
$XX
 July 31 2016
$XX
 August 31 2016
 $XX
 September 30, 2016
 $XX
 October 31 2016
 $XX
 November 30 2016
 $XX
 December 31 2016
 $XX
 TOTAL 2016 PAYMENTS 
 $XXX

To assure that our arrangement remains responsive to your needs, as well as fair to both parties, we will meet throughout 2016 and, if necessary, revise or adjust the scope of the services to be provided and/or the prices to be charged in light of mutual experience.
Furthermore, it is understood that either party may terminate this Agreement at any time, for any reason, within 10 days of written notice to the other party. It is understood that any unpaid services that are outstanding at the date of termination are to be paid in full within 10 days from the date of termination.
If you agree that the above adequately sets forth XYZ's understanding of our mutual responsibilities, please authorize this Agreement and return it to our office. A copy is provided for your records.
We would like to take this opportunity to express our appreciation for the opportunity to serve you.
Very Truly Yours,

BY: __________________________
Allan Somnolent, Partner, ABC, CAs

Agreed to and accepted:

BY: __________________________ DATE: ________________
Customer, President, XYZ, Inc.

Notes

An explanation of the components of the sample fixed price agreement are given below.

Date of the FPA
The FPA can be either for a calendar or fiscal year, depending on the customer. You may want to stagger your FPAs so the firm will not be rushed to draft new FPAs within one particular time of the year. I have seen multiple year FPAs, as well as Perpetual FPAs that cover all the compliance work for the customer, leaving a second FPA to outline those services that change from year-to-year.

Professional Services Provided
Obviously, you will describe each service to be provided by your firm, and you may provide additional scope detail to the degree necessary to have no misunderstandings between you and the customer. This requires professional judgment. For example, with the audit service in the sample FPA you are specifying the customer provide PBC schedules by March 15, 2016. If the customer does not deliver by this date, the scope of the audit changes, and a Change Order should be issued.

Unlimited Access
This service is included in the bundled price to the customer and will break down the communication barrier that may arise if you charge for each meeting and phone call. The more you talk with a customer throughout the year, the better able you will be to provide additional value, especially before the customer enters into various transactions.
Do customer abuse this service? Overwhelmingly, the answer is no. Any customer who enters into an FPA with your firm is usually an 'A' or 'B' customer, and a high level of mutual trust, respect, and understanding already exists. If they do need to call you at home on Saturday evening at 11:00 p.m. it is usually for a very good reason (a death in the family, accident, etc.), and you want to talk to them. Any additional work that results from these contacts is priced separately, utilizing a Change Order. Also, if a customer did contact your firm excessively, you are obviously adding value, and can readjust your price accordingly for this access. If they are abusive, or unwilling to pay for your value, you should terminate them.

Unanticipated Services
This clause offers many advantages. By specifying the services that you are aware of at the time of drafting the FPA, you are leaving many opportunities for providing additional services, and because customers are paying you for unlimited access, they are more likely to select you to provide those additional services, thereby effectively locking out the competition. Another advantage is, by their nature, Change Orders deal with marginal services that the customer wants, rather than what the customer needs (because the FPA has taken care of their basic compliance needs), and can command premium prices.

Value Guarantee
This policy reduces the risk to the customer of working with your firm, as well as justifying a premium price. Why should the customer bet on your firm if you won’t? A service that is guaranteed is worth more than one that is not, so this clause will allow the firm to command a premium price over the competition.

Price Guarantee
This clause ensures that your firm sets the price when you have the leverage, which is before the engagement begins. A service needed is always worth more than a service that has been delivered. If there is no customer signed FPA or Change Order, no work will be performed - period! This will inculcate the 'no surprises, culture within your firm, something customers will value highly, providing an excellent competitive differentiation, and another opportunity for premium pricing.

Payment Terms
The sample FPA shows 12 monthly payments, but this clause can be designed for quarterly payments, semiannual payments, or with a deposit made upon signing the FPA. For personal tax returns, many firms require payment up-front or upon delivery at the latest.
One value-added idea for business customers is to offer the customer the ability to structure the payment terms around their cyclical cash flow rather than the firm’s workflow (who knows this cycle better than their accountant?). Since the customer has input into these terms, it will negate payment resistance.

Revisions to the FPA
This is a good clause to add, especially for new customers, since it reduces the risk the customer is taking. It also ensures the firm will remain in communication with the customer and continuously solicit feedback on their level of satisfaction.

Termination Clause
This clause also removes risk from the customer, lowering buyer’s remorse. By utilizing bundling and offering just one price for all the services in the FPA, the question arises about what to do if the customer terminates the relationship before all the services are performed. In that case, you will simply have to agree upon the value compared to the payments made, and one party will owe the other. The customer already has the option of paying whatever they believed the value to be due to the Service Guarantee, so don’t let this detail prevent you from bundling your services into one price.

The Words You Should Use
The word price is a better word than fee, since it conjures up no negative feelings, as does invoice rather than bill. The word agreement is preferable to the word contract, which conjures up images of disputes, lack of trust, courts, and lawsuits, while agreement has a much more positive connotation to the customer. The word authorize is preferable to sign for the same reasons, and puts the customer in control.