The project bids are in: A word about low-balling 12 Apr 09

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We had tremendous interest for the project and the 10 bids originated from India, Russia, US, Romania and Australia. They ranged from detailed project delivery documents including time estimates per user story to simple one-liners like “We can do this for $X in the specified timeframe”. Needless to say, we did not follow up on one-liners.

 

In our case the lowest bid, besides the one-liner offers, was actually well put together. But the document fell apart on closer inspection and even though it seemed that the company had understood the scope of the project, their time estimates were off. During a phone call we were assured that the project duration was correct and that they were confident about their ability to deliver. Their estimated cost was only a quarter of the bid from a company located in the same area of the same country. This was a classic case of “low-balling”.

 

In this context “low-balling” means that a company deliberately understates the cost of the project with the goal to beat the competition and get the project in the door. Once the project is in the door, every small deviation from the project requirements will be treated as scope extension and the additional effort will be charged accordingly.

 

The easiest way to spot a “low-ball” is by dividing the cost of the suspected “low-ball” bid with the time estimate of one or more reasonable bids from the same area or country. If the result is an unsustainable hourly rate, in our case it was $4/hour, then you can be pretty sure they either made a mistake or they are using a “low-ball”. The company we are referring to actually had decent enough feedback, no glowing reviews though, so they obviously had delivered in the past. But we simply didn’t get a fuzzy feeling when we talked to them and with that the lowest bid was off the table.

 

In our opinion, low-balling or low-bidding companies have significantly added to the negative perception of outsourcing. They make it harder for companies like us to find a suited supplier because we don’t want to be constantly hassled regarding rising cost and scope extension. They also make it hard for competing suppliers to justify their higher costs for a well planned project. Unfortunately reviews of past projects have only limited value to spot them. But putting the blame solely on the suppliers is not justified either, some companies see outsourcing as a source of cheap software engineering labour and with that actively encourage low-bidding.

 

If you don’t want to end up paying a lot more for your project than anticipated, due diligence throughout the selection process is really important. Cost should never be the only criteria.

 

In the next post we’ll talk about our selection process and list the criteria we used.