Provisions & Premiums is a remuneration model for software development contracts, which was co-developed by the author and IT entrepreneur Stefan Roock. It is designed to be "benefit-oriented", i.e.: The remuneration of the software developers (the contractor) essentially depends on the benefit that the developed software provides. This benefit can be defined in very different ways; it can be be derived from a business target (e.g. a sales target for an APP) or a metric from process controlling (e.g. time savings of X man-years or maximum throughput time for work process X). This is left up to the parties of the contract.

According to this remuneration model, the contractor receives a premium if the defined benefit is achieved. At the same time, the contractor receives a low daily rate as basic compensation, which, however, covers costs and doesn't include a profit margin. The objective of this contract design is obvious: It is about the incentive for a close, partnership-based cooperation and to give the contractor a strong incentive to familiarize himself with the business model or processes of the client.

In practice, the contracts must be designed in such a way that the contractor's risk of missing the premium is at the same time counterbalanced by the opportunity to achieve the premium and thus generate a profit above the usual market profit margin. Provisions & premiums combined are therefore higher than would be the case with a purely fixed price.

Author

Sebastian Zang has cultivated a distinguished career in the IT industry, leading a wide range of software initiatives with a strong emphasis on automation and corporate growth. In his current role as Vice President Partners & Alliances at Beta Systems Software AG, he draws on his extensive expertise to spearhead global technological innovation. A graduate of Universität Passau, Sebastian brings a wealth of international experience, having worked across diverse markets and industries. In addition to his technical acumen, he is widely recognized for his thought leadership in areas such as automation, artificial intelligence, and business strategy.