An astonishingly large number of software projects fall short or end in failure. Usually, that’s the high price of starting the project with the wrong agency. This article will explain the fundamental dos and don’ts of choosing a vendor for your project and getting the most out of it.

Software development is a long, demanding, and rigorous process. Each phase of this process is gradual and non-interchangeable. By analogy with construction, when you can’t build a house without soil testing and laying a solid foundation, you can’t either find a random team of developers, provide them with a short description of your idea, pay them a certain sum of money, and expect all your needs to be met. Such an approach usually negatively affects your budget and causes significant operational delays.

According to McKinsey research, “on average, large IT projects run 45% over budget and 7% over time while delivering 56% less value than predicted. Software projects run the highest risk of cost and schedule overruns.” And in a long-term perspective, “most companies survive the pain of cost and overruns. However, 17% of IT projects go so badly that they can threaten the very existence of the company.” Given the above facts, even if you’re tempted to jump into the development process as fast as possible, pay enough attention to vendor selection before getting involved in any agreement.

A good portion of those issues comes from the desire of sales teams to win a project and fit into the client’s defined budget. So, the “bid to win” strategy is a very old approach that some companies use to attract clients. As soon as you get involved in an unrealistic offer, you start to see issues in project delivery almost from the very beginning. Promising and delivering are two different worlds, says CCO at LaSoft Andriy Tatchyn. 

At LaSoft, we do not make false promises to our clients, as our reputation is more valuable than winning a single contract. Unfortunately, this is not how all market players operate. In the market, we see a good amount of “bid to win” cases when vendors offer clients a nice story without a deep and proper understanding of the project. Those projects are always out of budget, out of schedule, and often stopped by clients before the final delivery. As a firm in LaSoft, we estimate and plan projects accurately before providing the client with a commitment. 

How to identify unrealistic project estimations

There are some indications on how you can identify unrealistic project estimations:  

1. Estimates are given on a very high level without details on how those numbers were given.
2. There is no decomposition in stages.
3. Decomposition is missing some important stages, like System Discovery or UI/UX design.
4. The estimate is provided only for development work. Time for communication, quality assurance, improvements, bug fixing, and deployment is not planned.
5. The cost of the work is way lower than the average offer on the market. 

Real-Life Case Study

Due to the high competition within the software development market, some vendors use a bid-to-win technique. By making commitments they don’t fully understand and more than likely won’t fulfill, vendors try to hook clients. 

The real-life case from LaSoft’s client aims to illustrate the importance of stating the right questions during a vendor selection process. Client Nate first reached out to LaSoft a few months ago with an inquiry (software development). After thoroughly researching the proposal, the LaSoft team came back to the client with a calculated cost and timeframe for the project.  As far as Nate found, the development cost of $40,000 was not affordable for them, so they stepped back for further consideration.  Two months later, Nate informed the LaSoft team that they had found a more affordable vendor. According to Nate, the vendor from Africa claimed to undertake his task for only $7000. 

Here comes the very first and perhaps one of the most obvious red flags—a low price. Many companies fall for this hook instead of acknowledging that ‘too good to be true’ deals usually have nothing to do with a professional approach and satisfying results. When a vendor’s services come at a significantly low price in comparison to competitors on the market, beware of low-quality services or even fraud. 

In the case of Nate, after signing a contract with the vendor, there hasn’t been any noticeable progress with the project. Nate reached out to the LaSoft team again, asking them to supervise the attached agreement to get a professional verdict on the matter. After examination, Andriy Tatchyn noticed that instead of providing a client with a stage overview with a step-by-step progress breakdown, the vendor promised to set up ‘boilerplate functionality’ and provided the client with some documents. The lack of consistent communication and inability to meet set deadlines were among other disturbing signs. With quite a vague contract without a specific time frame, a breakdown of project milestones, and an overview of costs, Nate was walking on eggshells.  Having made an advanced payment, I expected to see some progress. However, they are stuck at the ‘feed promises’ stage.  After two months of actual engagement, the vendor did not manage to provide Nate with documentation containing clear accountability statements, the scope of work, and UI/UX design. 

By the end of the third month after signing the contract, Nate has access to a dummy platform, a short document still missing the exact time frames of each stage, a cost overview, and other important details. Moreover, Nate hasn’t received the MVP or UI/UX design. 

Legal Agreement with Vendor

The Case Study from La Soft’s client demonstrates the negative outcomes of ill-considered vendor selection. On top of that, the legal agreement between Nate and the vendor looks insufficient and lacks some important points. Volodymyr Pushkin,

The CEO and co-founder of & Beright Law Agency stresses the importance of having the right definition of the contract to be signed between a client and a vendor. Within the IT industry, the right definition of such a contract is a Master Service Agreement. What exactly is it?

MASTER SERVICES AGREEMENT on providing IT professional services is an agreement on delivering professional services in the field of information technology. Under this agreement, a vendor can provide services such as research, audit, design, or software development. 

When asked about the specifics of this kind of agreement, Volodymyr Pushkin points out that “the legal relationship is regulated by the MASTER SERVICES AGREEMENT, which contains general provisions, i.e., the basic rules of the game, and an annex to the agreement, which already contains specifics. This is necessary to clearly regulate a specific type of cooperation, since, besides the MSA, we can form an annex for the discovery phase, development, or support. Also, within each annex, we describe the model of cooperation between the parties; for example, it can be cooperation in providing services at a fixed price or on a time and materials basis, or cooperation in the format of a dedicated team. The parties can fix the scope of work with the help of a description of the change management process, or they can choose a more flexible model where the contractor processes tasks as they are received from the project manager, who approves them in advance with the client. 

If previously we have talked about outsourcing activities when a vendor is responsible for the results and project management, you can often see the so-called outstaff format on the market when a vendor is responsible only for the availability of a specialist who is transferred to the client’s team. Therefore, the specifics of these contracts are quite obvious and require an understanding of the processes not only from a legal point of view but also from a technical one to correctly regulate the legal relationship between a client and a vendor.”

A clear definition of the agreement between a vendor and a client is vital to avoid any further misunderstandings. Equally important is to be aware of the mandatory agreement ballpoints. According to Pushkin, “there are legislative requirements for the contract, the so-called essential conditions:

• subject; 
• price and term;
• practical requirements.”

In Pushkin’s opinion, the MSA itself must clearly prescribe:

the procedure for providing services and accepting work, which will determine the deadlines for amendments from the client, how this happens, and the number of iterations;

the terms of payment and the appeal of invoices;

a ban on the recruitment of employees with a mandatory prescribed procedure for proving and fines;

of course, other provisions, such as limitations of liability, the moment of transfer of intellectual property rights, conditions for terminating the contract, dispute settlement

(arbitration clause) and other norms that will already be followed by specific legislation.

Conclusions

Identifying the wrong vendor at the very beginning is a priceless skill that guards you from disappointment, organizational delays, and financial issues. As soon as you train a keen eye for obvious red flags, you are no longer under threat of any ambiguous cooperation. When all doubtful options are filtered down, you can focus on selecting the right team for your project. However, even delegating your project to a trustworthy vendor with great expertise in a certain niche isn’t a guarantee of success. It takes two to tango; thus, you should put the right questions before engagement, not skip the discovery stage, and rely on a professional lawyer to get the most out of your agreement.