Futurice Blog

The problem with competitive bidding

A very well refined thought on why competitive bidding based on a thoroughly scoped RFP where price is a strong criteria can lead to an unhealthy project from http://julkisetohjelmistohankinnat.wordpress.com/2009/11/28/ominaisuuksia-euro/

Kun monta tarjoajaa arvio projektin työmäärän, olisi yllättävää, jos joku ei arvioisi alakanttiin. Kaikissa avoimissa tarjouspyynnöissä on tietenkin sama vaara arvioida työmäärä väärin, mutta ohjelmistoprojektit ovat niin suuria suunnittelutehtäviä, että niiden työmääräriskit ovat suurempia kuin useimpien kilpailutettavien hankintojen. Koska hinta on usein tärkeäa valintakriteeri tulee työmäärän liian pieneksi arvoinut toimittaja helposti valituksi.

...and the same loosely translated to English:

When many bidders estimate the effort for the same scope, it would be surprising if at least one of them wouldn't underestimate. The risk of underestimation is obviously present in all open competitive bidding, but software projects are so huge as design assignments that the risks involved in effort estimates are far larger than most other often competed purchases. As price is often an important criteria for selecting the supplier, the one that made the mistake of underestimating often gets selected.

A project where the initial scope of work is underestimated is more or less doomed from the very start and will eventually end up in lack of quality or an unhealthy blame game between the customer and supplier. Also the supplier presenting the lowest bid can often be perceived as the most efficient when in fact the case may very well be that they understood the problem the worst. If a project goes into overtime or the quality is bad, someone will always pay. And nobody likes surprises.