Fixed Price bids. An open invitation to bribe, cajole, lie and cheat.

I have been fortunate. Because some things take time and I have had the time to experience Scrum deeply before the demand rose sky high at my local markets. Time and experience formed the foundation upon which I build in some larger scale Scrum transformations that I am involved in.

I have learned much. I have much to learn. Yet, some people ask for my opinion.

A frequently recurring question is on the combination of agile and fixed price bids (and contracts). Here are my thoughts:

I have an opinion

Fixed price bids are an open invitation to bribe, cajole, lie and cheat.

  • Fixed price contracts introduce a blaming culture. They don’t aim at collaboration and sharing but at shifting all risk to one of the contracting parties. It invites people and organizations to be dishonest and fight in order not to take the blame (and the penalties). It might end up with the supplier financially getting hung, or the requester getting bad quality or not getting work by devious (and clause-wise) omission.
  • Fixed prices deny the very nature of our business. Software development is complex and creative work. There are a lot of elements that influence process and progress, and the number of unpredictable elements surpasses the number of predictable ones.
  • Fixed prices thrive on the belief that time, budget and scope can be fixed and planned upfront. Although everybody (at least off the record) acknowledges the truth in the metaphor of the iron triangle of software development, few seem to say it aloud. Hereby, fixing time, budget ànd scope creates only one certainty, i.e. low quality.

I have experience

Fixed prices define ‘success’ as the predicted combination of in-time+on-budget+promised-scope. Research by the Standish group has shown that agile is more successful than a traditional approach, even against these old criteria. This is not a reason to promote the combination! Yield rate is better but still low by setting the wrong expectations in the context of software development, i.e. that the unplannable can be predicted in a plan.

In the early years of my life in agile, I have delivered several fixed price projects successfully with Scrum. I even developed a framework for it. Still, from a contracting point of view it introduced the notion of ‘fixed price-negotiable scope’. Every single time that this notion was neglected or ignored I ended up in a one-way scope negotiation situation. The bleeding, the pain and the war situations never positively contributed to quality, time to market, user satisfaction, ROI, TCO. Blaming and penalties just appeal to a primitive sense of revenge.

In our Professional Scrum courses we work with the people in the class to figure out options to use Scrum. We try to facilitate bottom-up knowledge generation. We consider parameters and complexities that influence IT and software development, to find that in general we can’t be sure we have them all, and that at least some of the known ones are still quite unpredictable.

Agile via Scrum restores the understanding of the true nature of software development, and offers new ways of working and control to deal with uncertainty. It helps us to shift from the industrial to the creative paradigm and to accept that software development and fixed price contracts are not fit for each other.

I have a dream

Against all experience in, proven low yield rate, failures, burnt-out people and caused distress, the belief remains that a fixed price contract offers certainty. Although there is a tangible and incredible way to deal with the natural uncertainty of software development, Scrum. Scrum allows us to collaborate and behave as partners. We can jointly evolve, learn and check regularly on what does/does not work. But it still requires the first, huge step to let go of the false belief in planned certainty.

I have a dream; the dream that IT professionals stop offering on fixed price bids. Because it is unethical, risky and untrustworthy to make that kind of hard-coded promises in a complex and fast-changing environment. It is… unprofessional. And there is a great alternative option.

2 thoughts on “Fixed Price bids. An open invitation to bribe, cajole, lie and cheat.

  1. [...] is no doubt in my mind that fixed price contracts are a bad idea. It is not at all uncommon for contractors to offer good competitive “fixed” prices [...]

  2. I haven’t got your experience but I used to setup the first agile contract 
    within the IS of a big industrial manufacturer and now I’m trying to transform
    a public government  authority.

    My experience shows that AGILE is, right now, the new “cool” marketing tool for sales people, at least for IT service company. 
    And for me it’s just the beginning. That’s reminded me the IT offshoring concept : A great sales tools with huge economic gains , and a real nightmare for the delivery.
    And if competition lead to fixed priced engagement, what is your competitive advantage then ? 
    For me adopting an AGILE process have to be decided and communicate by the highest sponsors in the organization and not stay at the geek level…
    and some time we disregard ( or we are not able to do )  this hight level communication  ( Procurement, Ceo … ) then we enter in the nightmare of the bribe,
    cajole, lie and chit things…

    Yes IT company have to make strong commitment… and for the moment I see two  guardrails  ( only if we have the right sponsors ) within the organization :
    The benefice of a real integrated team Customer / Provider and the share  definition of the role and responsibility of the product owner.
    Product Owner IS the key :) 

    Amor Fati…

    Cédric

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