How often have you begun a conversation with an external software development project team and asked for a fixed bid contract? Often? Always?
Although a lot of people like the idea of a fixed bid contract, many don’t realise that it’s actually the riskier option. Having a fixed price point for a software development project seldom works out as planned and may lead to project failures. With requirements often changing along the way, it is difficult to always correctly estimate what time frame and budget is required for a particular project.
In this blog, we explore three common myths around fixed bids and how to look beyond them.
Myth: Fixed bid contracts ensure that costs don’t get out of control
Truth: In fact, when asked to put together a fixed bid contract, the provider usually under or overbids.
A frequent occurrence is that the provider tries to avoid any potential risks or future problems by drastically overestimating the price of a service. This leads to the client paying a much higher amount than they should have in the first place.
On the other end of the spectrum, some project managers underbid a project leading them to rush the project in order to meet tight deadlines as quickly as possible. Even though a company may think being underbid is a good thing at first, they are likely to experience a lack of high quality work. It is therefore unusual for a fixed bid to work out well for the client.
In fact, by avoiding fixed bids, you’re more likely to pay the right amount for your project as there will be more room for negotiation and an accurate estimation of prices from both parties along the way. This can be conducted through regular evaluations and reviews.
Myth: Taking an Agile approach can get out of hand
Truth: Project requirements can change along the way and often a project may take far more or much less time than originally planned. This is why an Agile approach is key.
Although not all companies are familiar with working with Agile methodologies, making incremental improvements is a much better model for successful software development. It’s also a very collaborative model, which can be more suitable to building a successful partnership.
Myth: Fixed price bids mean the relationship is more likely to be stronger
Truth: At the end of the day, all work collaborations come down to trust and building the right relationship with your partner. Having a fixed price point that is not right for the project because it is either too high or too low can taint a relationship from the beginning.
By having a more open conversation about the price of a software development project, for example, trust can be formed through negotiation and compromise. With a collaborative relationship, clear communication and agile processes, you can ensure the highest quality work is developed.
Project managers are able to conduct the project to the highest standards without the setbacks or limitations of a fixed contract.
The bottom line
Fixed bid contracts do not allow any room for adjustments in the case that something unexpected arises from what was originally discussed. An important thing to remember is that change is a positive thing in the tech world and businesses should always anticipate it to happen. There is no innovation without change.
This is why companies must ensure they implement an agile and communicative relationship with project partners and that enough leeway is given for necessary updates in order to create the best work possible.