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We are working for a Railway IT Projects. The projects are usually awarded as part of government tendering process. The requirements in the railway tenders are very high level functional requirements. The majority of the requirements can be interpretated in many different ways. Even further, some requirements contain an open ended statement like details shall be discussed during design stage.

Our fear is that with such unclarity and a open ended statement, it gives the customer lot of power. During project execution, we are never be able to close the project with full acceptance. As a result it causes overrun of budget and the schedule.

I would like to understand from the experts,

What is the best way in terms of process & strategy to successfully handle these types of projects with full customer satisfaction?

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    Not an answer, but have you read the UK government guidance on agile project management? gov.uk/service-manual/agile-delivery even if your not in the UK, it's a good example of how to apply agile techniques to large government projects. Jul 4 at 9:31
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Depending on whom you ask, there is no 'best' way to approach this. There are, broadly speaking, two 'good' ways to approach this; Waterfall with a Fixed Price contract, or agile with a Time and Materials contract.

Time and Materials

T&M is what I personally would recommend, though depending on the client (especially government), it might not be accepted. Still, it makes more sense when requirements are either not known at the start or are subject to change. Rather than accepting a lump sum for the project and completing it once the contract's details are accepted, you receive payment for the actual work put in, and both the work and the money continue until either side (typically but not always the client) decides to not put in any more money/work, at which point the contract (and project) are finished.

Fixed Price

FP is dicey precisely because of the issue you've run into here. With a FP contract and unclear requirements, you have three options:

  1. Refuse to accept the contract until the requirements are defined to satisfaction.
  2. Bake the uncertainty of the contract into your price; price the contract based on a worst-case scenario (which, given requirements this vague, would be exorbitant).
  3. Suffer.

Third option

Don't accept the contract.

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