KZ Controls is dedicated to helping you determine the best solution for your application
Fixed Bid Contracts
PROS:
A fixed bid contract puts the risk on your vender; meaning, if the vender's estimates are off, then it is up to the vender to make up the time or cost differences.
CONS:
Due to the risks, venders will over-estimate and then increase contingency costs. This will make your outsourcing costs increase. If you do not know exactly what you need, the vendor will most likely require a project change notice (PCN) every time you need to change the scope of work. A PCN is another contract with new estimates and new contingencies, which translates to higher costs for you.
A fixed bid contract puts the risk on your vender; meaning, if the vender's estimates are off, then it is up to the vender to make up the time or cost differences.
CONS:
Due to the risks, venders will over-estimate and then increase contingency costs. This will make your outsourcing costs increase. If you do not know exactly what you need, the vendor will most likely require a project change notice (PCN) every time you need to change the scope of work. A PCN is another contract with new estimates and new contingencies, which translates to higher costs for you.
What to expect:
1. Initial preparation
- To avoid unexpected costs, delays, and undesirable results, you should clearly define the scope of work and all requirements before contacting your venders.
- Understand ALL requirements to include budget, schedule, safety factors, environmental factors, resources available, hardware needs, and software needs.
2. Initial vender meetings
- Explain your project goals, requirements, and concerns.
- Be prepared to answer a lot of technical questions from the vender(s).
- For fixed bid projects, it is best if you provide your vender with a clearly defined scope of work.
- Allow the vender time to ask seemingly stupid questions, as he/she may simply be trying to avoid assumptions (many industries use similar terminology with different meanings).
3. Negotiations
- The vender will require some time to create estimates based on expectations from the scope of work.
- The vender will present you with a proposal (quote with expectations and legal stipulations) that include their estimated costs.
- If the estimates are more than you expected, ask the vender to explain where these costs are coming from (it is not uncommon to ask venders for an itemized cost breakdown).
- The vender prices might be flexible (depends on the vender).
- The easiest way to reduce costs is to look carefully at the requirements.
- If there are some things you are willing to take out of the scope of work, then there is a good chance that you can reduce the costs.
- Consider the T&M option (typically the cheapest option, see the ‘T&M’ page)
4. Sign contracts
- If you do not have a legal department, be careful when accepting all stipulations within the vender proposals.
- Your company may require that the vender be added to their “approved vender list.”
- Your company may require a nondisclosure agreement.
- Your company may require a master service agreement, or master purchase agreement.
5. Execution
- Typically, a vender will work from their office until onsite assembly, installation, and/or testing is required (if you prefer that the vender work more onsite at your facility, be sure to include this in the scope of work and/or negotiations).
-
If progress reporting is
desired, be sure to include your desired form of updates (meetings, emails,
documents, etc…) and the frequency of the updates in the scope of work and/or
negotiations.
6. Delivery
- Delivery may include official or unofficial acceptance testing.
- The contract may require that the vender provide your company some kind of training post-delivery.
-
The contract may require
that the vender provide official or unofficial documentation post-delivery
(drawings, diagrams, operation, preventive maintenance/calibration, etc…).
Recommended use:
- When
your detailed requirements are understood and clearly defined.
- When
your deadlines are coming soon.
- When
you desire/require little to no flexibility for the project requirements.
- When
your budget is strict.