Why customer are forced to choose T&M instead of Fixed Cost for software project even though they know T&M is not cost effective.

Let me start this by answering a few high-level logical questions...

What model vendor prefer: T&M

What model customer prefer: Fixed Price

Why customers prefer "Fixed Price"?

Because in T&M future cost of service & requirement is uncertain, customers don't know how much time & cost will be for what they are looking for.

Why vendors prefer "T&M"?

Since the requirement from the customer is not clear, so it would be risked on project profitability due to unnecessary commitment of delivery with a fixed rate and time.

In both, the above case requirement clarity is a common cause...

Now another big question... "Why the customer is not able to give clear requirements"

Customer's lack of knowledge & confidence in requirements.

Let me explain, normally, the customer would like to start with giving a vague requirement, now its is the vendor's duty to breakdown the requirement and get a clear picture. 

During this requirement understanding phase the "Test of patience" comes in the picture, more the customer's patience, clear more requirement, which helps the vendor to get more confidence in requirement.

When the requirement is highly clear and vendor confidence is also high then this situation always support the fixed price model.

But, in most of the case, either party fails in "Test of patience". So, they have to compromise with the T&M model. 

• For the customer, requirement explanation/breakdown is a time-consuming process and overhead. 
• And for the vendor, they are more eager to give solutions even without listening to the full requirement.

Now another question comes to mind that "Why customers think requirement explanation is time-consuming & overhead?"

Generally, the customer's main business is not the development of software instead work on the business operations which are directly connected to their company's objective, vision, and mission. So, the motivation towards requirement explanation is low, which results is Fail in the "test of patience".

So it's about the prioritization and utilization of the company's resources for the activities which are directly pertaining to the company's vision, mission, and objective or utilization of resources for other activities such as software development.

So, if I would conclude this by saying that everything is about the utilization of company resources efficiently which is a top goal for any organizations. So, organizations think let us go for T&M and let software vendor deliver and support us even though its high cost!

I hope you were satisfied with he logical reason why company force to choose the T&M instead of Fixed price. 

I can see still a lot of new business opportunities to solve another problem statement as which is still not yet solved "How we can we help the customer so that customer can force vendor to go for fixed price and save a lot of time & costs"

Thanks

Vivek Khare