Why Fixed-Bid Pricing Is Better Than Time & Material

Fixed-bid pricing and time & material (T&M) pricing are two common pricing models used in multiple companies. Having tried both and while they have their own advantages and disadvantages, I strongly believe that fixed-bid pricing is a better option compared to T&M pricing. Here's why.

Fixed-bid pricing is a model where the price of a project is fixed upfront based on the scope of the project, and the payment is either made in full upon completion of the project or split by milestones to add critical checkpoints in larger projects. This model has several advantages. Firstly, it provides a clear understanding of the cost and budget for the project from the start, which helps in better planning and allocation of resources. Secondly, it reduces the risk of cost overruns as the price is fixed, and the project team is incentivized to complete the project within the budget.

On the other hand, T&M pricing is a model where the client pays for the time and resources used by the project team, along with any other expenses incurred during the project. This model has some advantages, such as flexibility in project scope and the ability to adjust the budget as the project progresses. However, it also has several disadvantages.

One disadvantage of T&M pricing is that it can encourage the project team to drag out the work and artificially increase the time needed, in order to get paid more. This can result in unnecessary delays and increased costs for the client.

Another disadvantage of T&M pricing is that it rewards those who take longer to accomplish something, whereas fixed-bid pricing encourages the project team to be more time-sensitive and deliver as soon as possible, without compromising on quality.

T&M pricing often comes with its load of constant bad surprises, such as unexpected expenses or delays. In contrast, fixed-bid pricing provides a fixed price for a defined scope, which reduces the risk of unpleasant surprises.

With T&M pricing, the client has to worry both about the timeline and the cost, which can create additional stress and uncertainty. In contrast, with fixed-bid pricing, the client only needs to discuss due dates, which simplifies communication and reduces the workload for both parties.

In conclusion, while both fixed-bid pricing and T&M pricing have their own advantages and disadvantages, I strongly believe that fixed-bid pricing is a better option. It provides clarity and certainty around the final cost of the project, encourages efficient resource allocation, and reduces the risk of cost overruns.