The Hidden Danger of Fixed Price Projects

How much is that going to cost?

That’s always the first question, isn’t it? A client wants a site, tells you a few things they’d like, and then says “How much??”

There are plenty of ways to answer that question.

  • You can tell them it’s impossible to quote.
  • You can tell them an hourly rate.
  • You can give them a fixed price.
  • You can tell them it costs the same as a car…which is basically the same as #1.

I’m not going to discuss the best way to quote a project, that could go on forever. What I’d like to focus on is the hidden danger of a fixed price project.

The Fixed Price Option

This is generally a favorite of clients. They get a fixed price up front and they know exactly what they’re supposed to receive for that money. Agencies and developers often like this option because they’re no longer working for an hourly rate, they can instead make a nicer profit on the project – assuming they get things done on budget.

However, it comes with a hidden danger for the client. What happens when the developer underestimates the time required to build the project? Easy answer right? They have to keep working until they’re done.

But, what if the developer underestimated by 10%? Or 20%?

Will they keep going?

What if they underestimated by 50% or 200%? Now what?

What if it’s actually cheaper for the developer to bail on the project than to finish it and collect the rest (or any) of the money?

At this point, you could argue “that can’t happen because we have a contract. If my developer breaks it, I’ll sue them!” Maybe, but what if it’s a $2,000 project? How much will legal fees cost to recover that money? Even then, the real problem isn’t the money lost but the fact that at this point you’d still be without your project. That’s what the fixed price route was supposed to take care of, right? A fixed price to get exactly what you want.

Therein Lies The Danger

That’s where the danger really comes in – the expectation that it’s possible to have a fixed price project with a fixed scope in order to eliminate the chance of failure. That chance of failure exists with a fixed price just as much, if not more so, than for other project structures.

So what’s the answer?

Unfortunately there isn’t a sure-fire way to prevent this from happening. Sure, you could completely avoid fixed price projects, but that’s not always realistic. Thankfully there are a few things you can do to help prevent this situation.

  • Scope – make sure you’ve clearly scoped the project and have agreed on what will be done.
  • Contract – always have a contract specifying the terms of the project.
  • Avoid fixed price projects for complex projects or projects without a well defined scope. You can also build some type of hourly limit into fixed price projects, which essentially makes the scope flexible.
  • Hire and work with someone you trust. Trust goes both ways and it’s essential that both sides trust each other.

Quoting a project or hiring a developer is never easy, but if you keep in mind the hidden danger of a fixed price project, you’ll go a long way toward having a successful build.

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