Fixed Bids – Bad News for Developers and Their Clients

Mallory Merrill

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Software development is always evolving, and fixed bids don't fit in an evolving industry. Here's why employing fixed bid contracts is detrimental to software development and why subscription software development is the future of dev. 

Fixed bids... This is the act of offering an estimated price for a development project before work is completed. Because the idea of subscription software development was not yet mainstream, fixed bids were once the industry norm.

For good reason, people are now questioning this pricing standard.

Personally, I think fixed bids are risky and outdated.

Subscription software development offers a more flexible, more cost-effective way to buy and sell digital products. 

It isn’t always easy to set a specific price for writing software. Unexpected problems can crop up, and sometimes things just take longer than expected.

Nowadays, more developers base costs on the number of hours spent instead of setting a price in stone. This is known as pricing on "time and materials."

While many clients still believe that a fixed bid will move the risk of unexpected costs on to the developer, they don’t realize that this payment structure is often bad for them as well.

In my ten years as a software developer, I have come across many clients that have insisted I set the price before the project begins. However, experience shows me that this normally leaves at least one party (and often both) unhappy.

What clients don’t realize is that good developers are on their side. Developers succeed when their clients succeed. For both the producer and the buyer, software projects should be planned based on a realistic timeline.

But with fixed bid projects, there is more chance that developers will be tempted to cut corners to meet deadlines. Obviously, this can lead to poorly completed work, which doesn’t meet the real needs of the end user.

It should also be noted that it is extremely difficult to set an accurate estimate which does not leave one party at a disadvantage.

Fixed bid contracts nearly always go over budget.

Developers who take fixed bid projects will come across difficulties and rush through them. Why would they want to spend extra time on a complex feature when they know they're not going to be compensated for extra work? This leads to a shoddy final product which, in turn, disappoints the client.

Instead, subscription software development allows you to pay for software as you go. You can receive working updates regularly, and stop paying for a team who doesn't meet your standards (before it's too late).

In the end...

Software development is extremely complex.

Unexpected things crop up. Bugs, upgrades to framework (which lead to function changes), or an API call not working as expected. These can all lead to things taking a lot longer than expected, and hard-working developers begin to think that they've been given an unfair deal with a fixed bid.

In the worst cases, I have known developers to end up handing over an unfinished product. That's a loss for everyone.

And the client is also going to lose out in terms of flexibility if they enter into a fixed bid contract. What if they want to suddenly change the requirements of the project? If they suddenly want to add a new feature at the last minute? Or a certain feature in the contract is complicating things and needs to be removed?

There is a lot more wiggle room and flexibility when a "time and materials" payment plan has been agreed from the outset (instead of a fixed bid).

Ultimately, clients will get a better deal if they do the research and pick a good software company. Review previous projects, speak to previous customers and you’re more likely to find a good match, instead of a bunch of cowboys. As the saying goes “You get what you pay for.”

Companies that realize that a per hour contract – which allows greater flexibility and ultimately a more impressive product – will be more successful in the long run.

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Many of us have been burned by setting fixed bid contracts for development work. Tell us your story or, if you support fixed bids, tell us why!

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