San Francisco, CA (PressExposure) July 20, 2011 -- Usually, when a project that will be outsourced changes it requirements and implies extra work will lead to extra costs if the contract has a fixed bid. The fixed bid contract is more than a fixed price as it also involved limited flexibility and additions that your project may encounter on the way. Fortunately, you have the possibility to opt for a time and materials contract that allows you to participate more on the project and make modifications to it along the way. Each of the two alternatives has its pros and cons, as specified above the fixed bid contract is not so flexible while the T&M contract will offer you less control over the final price. Therefore, when making your choice you need to decide which aspect is more important, the flexibility or the final costs.
A fixed bid contract is more suitable for a project where the schedule and the requirements are well defined and you can give the outsourcing service provider enough information and details in order for them to be able to approximate its complexity and the central goals and give you a fixed bid along side a strict schedule for completing the tasks. The final price for the project implementation will be mutually agreed and you will be delivered a pre-schedule timeframe. So, it is recommended to use a fixed bid model when you have clear and well defined requirements, when you don't necessarily want direct control of the resources, when you don't need to have high flexibility on the requirements, when you need the exact budget before the end of the project and if the project will take from a few days to a few months.
When you opt for a fixed bid model you will be provided a fixed quote for the detailed and well defined details that you will provide. This arrangement will be set of a pre-defined period of time and any additions or changes will lead to renegotiating the price. This pricing model requires for the main goal, the milestones ad the final outcomes to be clearly defined and agreed on from the beginning along side the requirements of the project, the standard IT operational procedures must be respected from both parties involved and the provider has the obligation to give the client periodic reviews during the process. Usually, the payment is made in four rates: 20% of the final price in advance, 30% on completion of the requirements, detailed design, project plans and test cases, 40% at the end of the User Acceptance Testing of the deliverables and 10% on implementation.
In conclusion, the fixed price model will provide you an accurate schedule and budget providing the client the best return of investment (when the estimates are accurately drawn) and the providers also have the advantage of having the possibility to make strategic investment into their technology practices and improve their client relationship management. Still, there are some drawbacks, like the increased responsibility of the client to choose the right provider, the direct relationship between the value of the project and the risk level, as the risk increases along side the value and the reduced flexibility and transparency during the process.
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