ODC Vs. Fixed-Price Contract: Which Outsourcing Model To Select?

ODC Vs. Fixed-Price Contract: Which Outsourcing Model To Select?

In the cutting-edge technology area, increasing companies require Software Development, be it Website Platforms or Mobile Applications, to meet their work and customers’ demands. However, most businesses lack resources to execute a software project or to afford the cost of development, and in that circumstance, Outsourcing Service is the sound solution to consider. Among various types of outsourcing model, ODC and Fixed-Price Contract are the most popular. To learn more about which one is suitable for your company, let’s look into its methodology as well as pros and cons of each type.

1. The Definition Of ODC And Fixed-Price Contract

a. ODC

ODC, which stands for Offshore Development Centre, is also known as Time and Materials Model. In an ODC model, the payment reflects the actual time spent and resources used in a project. Moreover, an Offshore Development team works as an extension of the clients’ software team, under the guidance of the Clients’ Project Manager. An ODC team would provide the remaining positions needed for a project, ranging from developers, testers to UI/ UX designers, just to name a few. To sum up, in this outsourcing model, the customer plays a greater role in the software development solution and carries all risks related to the scope of work. 

b. Fixed-Price

Fixed-Price Contract, or Project-Based Contract, is a model in which success depends much on the outsourcing providers, who would provide a full team from Project Manager to business analyst, Software Developers (backend, frontend, mobile dev, UI/UX designers, manual QA, automation QA (Testers),… to work on a specific project. After catching the idea and concept of the clients, the vendors would arrange meetings and have further discussions to find out the most detailed scope of work and timeline. Generally, the project would adhere to Agile Software Development Services, a way to manage the project by breaking it up into several smaller sections. Each phase often lasts for approximately 2 weeks and the payment would pay immediately after such sprint. If there are any changes related to the scope or schedule, it often translates into an increase in the cost. Therefore, it’s significant to clarify everything before the actual development in order to supply a precise estimation of the software product. By doing so, the Fixed-Price Model can guarantee that the software will be done and delivered within a specific timeframe and budget.

Fixed-price outsourcing model often adheres to agile methodology
Fixed-price outsourcing model often adheres to Agile Methodology

2. Main Benefits And Common Risks Of ODC Outsourcing Model

a. Advantages

Flexibility: Clients are able to make informed decisions during steps of software development, drawing on the outcomes of the previous ones (end-user feedback) and the analysis of the latest market tendencies. Therefore, features can easily be added or removed during the execution process to meet the customer’s expectations. Furthermore, thanks to the flexibility of this outsourcing model, no detailed software development plan is needed, so the project can launch fast as soon as the client and development team agree on the resources involved and contract terms. 

Clients’ Full Control of Project Management: In the ODC outsourcing model, project managers from the clients’ side are responsible for the team process, even deciding on which methodology to follow. If you ever ask “How to choose a Software Development Methodology?”, it mainly depends on the project requirements. For example, a project related to Finance and Banking or lasting for a long time is suitable for Waterfall Methodology. Moreover, as clients’ team directly collaborates with the ODC team throughout the project, it can be a promising opportunity for their employers, especially junior-level staffs to learn and improvise. Thanks to this type of project, they can seize a chance to expose themselves to new knowledge from experienced and creative ODC experts as well as apply their theory into practice, which is no doubt beneficial for both themselves and their business in the long term. 

b. Disadvantages

Uncertain budget and deadlines: If everything in the Project-based contract is clear at the beginning stage, it is nearly impossible to identify the overall budget and timeline in the ODC outsourcing model. It is no exaggeration to say that the final cost may go beyond the expected budget and so does the release date. Any adjustments to the project can shift the date of the final release and the project can become overdue. Besides, the software development price is approximate, so the clients hardly know how much money they have to spend. Therefore, it is all the Project Managers’ responsibility, who has to manage every step of development in the Time & Materials model closely by applying the KPI for each stage, which regulates the flow of work to stay close to the initial expectation.

3. The Pros And Cons Of Fixed-Price Contract

a. Benefits

Little management efforts: When signing a Fixed-Price Outsourcing model, all responsibilities of the project’s success will be passed down from customers to the outsourcing providers. No matter what problems may come up in the process, be it human errors, technology risks, or economic condition changes, will no longer relate to customers. Instead, it is the suppliers who take charge of it and have to solve it by themselves. Therefore, it can be said that the outsourcing providers take on the majority of the work while customers’ contribution is typically required at the initial and final stages, when requirements are elaborated and when the deliverables are handed over to the receiving party for acceptance. This takes away the pressure on the clients.

Clarity On The Project Outcomes: The Agile Methodology that a Project-based model follows helps to clarify the output of the project. This type of contract requires the supremacy of meeting deadlines and milestones while keeping the scope frozen until the sprint is over. Final acceptance is formalized and based on a number of criteria that the parties agree on in advance. Since Fixed-Price contracts are time-limited and finite, most outsourcing vendors offer a warranty period as a token of confidence in the results of their work.

b. Drawbacks

High cost: The fixed-price estimates are often higher when compared to other outsourcing models, as all foreseeable and likely risks are taken into consideration. If some risks do not play out, the cost will turn into the suppliers’ revenue. It would also become the vendor’s premium in case the project is accomplished faster than expected. However, most clients opting for such contracts are fine with this because it allows them to put precise figures in their budgets and future spending in advance.

Nearly impossible to change: There is almost no room for alternations in each phase of the Fixed-Price Contract. Any changes you may want to introduce further in a project, for example, driven by shifts in market conditions or your business strategy, would require separate negotiation and payment. Therefore, this outsourcing model also leads to a slow project launch because it requires scrupulous preparation, planning, ongoing monitoring, and coordinated actions of everyone involved. The preparation time may take at least several weeks, or even a month depending on the complexity of the project, which is seemingly not suitable for a project catching trends.

Fixed-price contract requires scrupulous preparation and coordinated actions of everyone involved
Fixed-price contract requires scrupulous preparation and coordinated actions of everyone involved.

4. A Fixed-Price Outsourcing Model or ODC?

In conclusion, every coin has two sides and ODC, as well as Fixed Price Contract, are not the exception. Both have pros and cons which require you to think twice before choosing. If your team has a clear understanding of your project and limited price, it is recommended to collaborate with the Outsourcing providers for a Fixed Price contract. However, the ODC model would be better in case the project is quite flexible and requirements tend to change frequently. 

If you wonder “Are there any Software Development Companies near me?” or “How to find the best Software Outsourcing Service?”, feel free to leave us a massage. We have 2 main outsourcing models for clients, including Offshore Development Centre (ODC) and Project-based, depending on specific requirements. With our creative experts, who have 10 years of experience in software development and consulting, we, SotaTek, are confident to provide you with Web & Mobile App Development with the latest trend in any area, be it Healthcare, Education, Real Estate or Finance industry. 

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