Fixed Bid vs Capacity: The Contract TrapBid (Fixed Price)

"I want this car for $20k."

• Pros: Cost certainty (for the client).
• Cons: The vendor is incentivized to do the minimum viable work.
• Result: The Change Request (CR) War. Every clarification becomes a billable event. The relationship becomes adversarial.

The Capacity Model (Team Augmentation / T&M)

"I will pay for a team of 5 experts for 6 months."

• Pros: Flexibility. You can pivot strategy in Week 2.
• Cons: Cost uncertainty. "What if they deliver nothing?"

The Outcome Based Model (The Unicorn)

"I will pay you $1M if you increase conversion by 10%."

• Reality: This model is rare because it requires high trust. Vendors avoid the risk; Clients avoid the value-sharing.

The Consultant's Advice

Avoid Fixed Bid for Innovation.

• Fixed Bid is optimal for Commodities (Building a shed, installing Legacy ERP).
• Capacity is optimal for Discovery (Building a new product).
• If you sign a Fixed Bid for a new product, you are purchasing a contractual dispute, not software.