A short while ago I said that fixed-price contracts don't work . Over on the Scrum Development group there's a discussion about competitiveness, estimates and organization culture .

Dave Martin said: People underbid because it gets them the initial contract as many clients will just go for the lowest bid. Once the project is underway, the costs start to escalate and the client has 2 options - pay up or write the project off and start again. The client is often better off writing off their initial investment and starting over but its amazing how often they don't do that and continue to burn money.

Keith Sterling responded: This is why so many large consultancies stick to the waterfall method. By bidding low and stipulating a waterfall approach, yet knowing that 99.99% of all projects will undergo 25-35% change during its lifetime, they know they will be able to make up the shortfall in their bid with high value change requests. It's a well known fact, yet unwritten rule that most large consultancies in the UK base their business model on the volume of change requests they can generate during a project, and why most of these organisations have some of the biggest legal departments I have ever seen.

Where is the sense in awarding business based solely on the price? Price is meaningless without a measure of the quality being purchased. If clients award business to the lowest bidder they're likely to receive low quality and high cost. You get what you pay for. And the client-vendor relationship will become acrimonious as neither party is satisified and it falls to the lawyers to fight it out. Deming predicated that driving down the price without regard to quality and service will drive good vendors and good service out of business . He was right but it's actually worse. As Keith describes, we now see companies making money from providing poor quality by charging extortionate sums for change requests. It's part of their business models. What a truly sad state of affairs.

Wouldn't it be better to enter into and nurture cooperative partnerships for the long-term that are built on mutual loyalty, trust and confidence, and which share the risks and the rewards? If you treat your partners as extensions to your business and align incentives so that everybody works for the good of the partnership, then quality will return, cost will fall, speed of delivery will increase, customers will be happy and everyone will realise prosperity.