Fixed-bid Contract also called as Fixed Price Contract (FPC) is a contractual agreement to provide specific Software Services for a specified price or a price range. FPC is viable for project with well-defined requirements and needs. If the requirements are not defined then you shouldn’t be going for a fixed price contract. In this scenario, it is the responsibility of the outsourcing partner to educate their clients on why FPC may not fit their bill.

Now, you have a fixed budget cap – should you opt for FPC ? The answer is No! That should not be the only reason to take up the FPC. FPC should be taken up only when:

  • Requirements are clear and detail
  • Projects are spread over a few days to few months
  • You want little or no flexibility on the project requirement
  • Determine the exact budget in advance

One must be aware that, too much emphasis on costs and deadline in FPC will have adverse effect on quality and development process. Setting up such a FPC puts an inherent tension between vendor and customer: vendor wants to maximize profits; customer wants to maximize the software development. This leads to heavy-duty change control, increasing resistance to change, acrimony and dissatisfaction. Most of the FPC ends up in cost and schedule overruns if not planned well. Hence it is important to touch base specific guidelines while planning the FPC. Also, it is extremely important that the project objectives are mutually understood among project stakeholders.

In our upcoming blog, let’s see ‘Why a Fixed Price Contracts fails?’Webinar