The hidden cost of fixed bid projects

Companies sometimes ask for fixed bid projects from their system integrator at the start of their business application projects. There are many reasons for this request. Some have had bad experiences with their prior implementations and don’t want to repeat them. Others have had projects that were delayed and over budget.

In the end, companies want their integrator to have “skin in the game”. They feel a fixed bid process would give them the control they didn’t have last time. And even though it seems like a reasonable request, the fix bid structure may not deliver what companies are hoping for.

First, let me put this out on the table, I am not a fan of fix bid projects. As a system integrator, I am probably biased. But, since I have been asked many times to take over failed fixed bid deployments, I have seen first-hand how the fix bid structure damages projects. It can actually work against the company's interests. Let me make my case.

Business application deployments are complex. It involves people, processes, and systems. It requires a lot of collaboration between the company and the system integrator. Every task and deliverable requires both parties’ full involvement. Responsibility is shared. Parties depend on each other to do their pieces. For example, a configuration requires the customer to provide valid requirements and the integrator to offer the best solution. If the requirement is wrong or the solution is bad, the configuration will not work. In another example, an integration requires knowledge from both parties to function well: how the fields should be mapped, how the messages need to be transferred, how the errors would be captured, etc. You can extend this dependence to remaining areas such as enhancements, migration, reports, change management, etc.

Trust is the key to removing the friction in execution. The relationship between the parties should be a true partnership, not a transaction-centric customer-vendor connection. I believe project deployments are like ping pong games. Regardless of how good you are, if your counterpart is bad, the game will suffer. If, however, you are in sync and pulling each other up, the game gets better.

Inserting a fix bid structure into this environment will tip the balance on this delicate scale. It will encourage the company to be more aggressive and the integrator to be more defensive. The relationship becomes transaction-based and unbalanced. The trust will diminish. The integrator will be on constant watch to make sure customer'’ requests are reasonable. Friction will increase. Tasks will take longer to complete. Consultants start doing things not because they are right, but because they are safe.

On the flip side, the company will see the project as an open checkbook. The more they can cram in, the more they gain. They are encouraged to increase the scope. The Integrator will respond with change orders and added costs. In the end, the project will suffer.

Let me propose another way. Prior to engaging, both parties should do their best to clarify the scope, approach, methodology, deliverables, timeline, resources, roles and responsibilities, and the budget. This can be achieved by a brief diagnostics exercise. Once the details are sorted out, parties can engage in a time and material project. The key will be to monitor the progress against the plan in a timely and frequent manner. With the right project management tools, every aspect of the project can be tracked. When issues arise, both parties will be responsible to resolve them. There will be no finger-pointing.

The ultimate leverage a company has is to disengage with the integrator quickly. The integrator's incentive is to do its best to carry on with the project to its successful go-live. In today's world, reputation is everything for a good integrator. Bad news travels far and fast in this industry. So, measure early, measure well, and have a right to cancel.

If you are interested to learn more, please connect with me on LinkedIn, follow me on Twitter, or watch me on YouTube.

My name is Cem and this has been another gem.