There is a growing business practice in my industry that I must reluctantly speak on. With the economy doing so poorly and this practice working so well, it’s becoming more prevalent. Underbidding. There are two types of underbids, Intentional and unintentional. Today I’ll speak on:
This is when a company makes a bid on a project that is less than what they can do it for and less than what they actually intend on charging you.
Q: How could anyone do this to me? I have a rock solid contract with my IT vendor on such and such a product?
A: The short answer is that they will present to you a product that does nothing like what you need it to shortly before the deadline to the project. Since it’s too late to get anyone else on board, they will have you at a disadvantage. They often blame you for not knowing the tech behind the project. they will say, contract or not, if you want to add this, it will cost you this much more.
Here’s how it works:
ABCD inc. needs a web application with a log in, a database, some screens to enter data, some functions performed on the data and some reports about what got entered, how much got entered etc. they also need this data to be exported in a particular format to send to another entity so they can be paid for the work they did. Their deadline is a reasonable 60 days away. It’s a high stakes project for them. If they don’t have this web application, they can’t provide services for a government contract they’ve recently been awarded.
XYZ inc. Is one of the qualified bidders on this project. Internally, they estimate this web application will cost them $3000 to make, they wish to make a whopping $5,000 in profit. they also estimate the competition can do it for $2500 and will probably want $1-2k in profit.
XYZ bids $1500 on the project, maybe, if the competition is hungry as low as $1000.
Shortly before the deadline, XYZ presents them with a web application. It will have serious issues. The log in won’t work right, all the data entry pages are missing fields. Maybe the connection between the page and the database isn’t working. they will also present a bill for the $1500 and demand prompt payment.
The execs at ABCD inc. freak. It’s 14 days before they are supposed to start entering data on their big government contract and their web application doesn’t work. They huff and they puff at XYZ inc.
XYZ may be apologetic, maybe not. Most likely they will try to say it’s ABCD inc’s fault because they didn’t understand what they ordered. They’ll say the things they need to add and/or fix will cost extra. Not much extra, maybe another $1000 . . .
ABCD inc explores their option. Guess what no one else can do it in time, and no one else can do it for $1000. So ABCD inc sees the writing on the wall and breaks out the check book.
Round 2. It’s now 7 days and the $1000 only got the log in fixed. After logging in to their web application and trying to enter some data, they’ll realize this web application still needs work.
Another call to XYZ. Guess what? It’ll cost $1800 and take 5 days.
ABC inc still sees that no one else can get it done from scratch (no XYZ inc will not let anyone else work on “their” web application and yes, the law is on their side) for $1800. Desperate now, ABCD inc breaks out the checkbook again.
Round 3. Tis time XYZ’s games have made the project late. There will be no time for training employees much less proper testing and legitimate bug testing. Yet the web application still won’t do the things they need it to do. Oh well says XYZ inc. You should have paid us that extra “rush fee” of 150% in the beginning when we offered it to you in the fine print because we know you wouldn’t buy it. Another $1000 in XYZ’s pocket for the latest round of fixes and additional features you didn’t know you needed to request in the beginning.
After a while ABCD inc will be so sick of XYZ that won’t even care about fixing legitimate bug, they’ll just make due as soon as they have something works “good enough.” Well you see the pattern here don’t you?
End Result: The project is often late, the product not as good as the company wanted and was promised and the company has lost money (they couldn’t keep up with their competition) and their reputation has suffered.
Sometimes XYZ inc’s reps are so good they have ABCD inc believing it really is their fault everything went so badly. They even say they were lucky to have a company that could “fix our mistakes for us”
Don’t be ABCD inc. Get it right, on time and for a reasonable price. Contact us today.