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3 Hidden Costs of the Low Fixed-Rate Bid for Medical Device Development

You’ve got a great idea for a new medical device sketched out. A successful implementation could mean acquisition of your start up company. But first you need engineers to bring your idea to life.

The selection of your R&D team will make or break your medical device development project. Going with the lowest bidder may seem like the safest move… but there are hidden costs of a low fixed-rate bid.

First, consider the adversarial mindset of fixed-rate bidding. Someone is going to be the loser, either the client or the contractor. The contractor’s goal is to make the time spent on the project less than what they estimated… while your goal is to get as much done as possible. Speed, innovation, and quality are not the incentives. Rather the incentive is to “fit you in” when the engineers have down time between higher-paying contracts.

This mindset costs time and money, adds stress, and deteriorates the business relationship on both sides. Far from working in partnership with your R&D team, your goals are set up in opposition. In extreme cases, you end up in court and are back to square one.

Second, consider how fine-tuned your product development requirements are. If you’ve already done a thorough job of defining exactly how your product will be built – and this may be possible if you are seeking a small modification to a product you have already developed – then you might have well-defined product development requirements.

Typically, though, this is not the case, and one of two things happens as product development becomes more complex: 1) the contractor begins to stall… and your deadlines shift further into the future; or 2) every refinement you want to make as the product is developed becomes a change, and each change becomes a tacked on cost, not to mention the time spent renegotiating the original agreement… and there goes your low fixed rate.

Third, a fixed rate imposes time constraints that shut down innovation. The tried and true are cheaper than the innovative and new. The great idea you started with is put into a cookie-cutter assembly line development system. Opportunities are missed because the focus is on spending the least amount of time on development.

If you want your product to bring something new to the healthcare industry, the research & development process for medical devices is necessarily complex. When you are inventing and refining devices that have never been created before, it is simply not possible to come up with a reasonable fixed bid that values innovation and “expects the unexpected.”

Many relationships sour when the contractor underbids on a fixed cost, only to find the client wants to add new requirements, or that the development path is simply harder than speculated. When a fixed-rate contractor realizes they will make little or no money, they quickly lose interest. Using their most inexperienced resources, a contractor may placate the client with the absolute minimum level of effort needed to avoid a lawsuit.

So if you are feeling drawn to a seemingly cheap fixed rate bid, or a contract manufacturer that offers a slashed rate or “free” development in exchange for the manufacturing work, consider these hidden costs before you decide. Especially with a complex project, an experienced team can deliver results within a range of time and costs, which can be calculated using a proper project management methodology. This range of time and costs allows for project acceleration and agreed-upon improvements, putting you in total control of your product without losing the most important element… time.

-Eric Johnson & Phil Burke