Why are Businesses Willing to Spend More for Software?

Lost Canadian Abroad asks: "As a software developer I have always found it strange that large companies are willing to spend obscene amounts of money for software development. Until recently I have shrugged it off as 'the cost of doing business', but something happened not long ago that has caused me to start questioning that practice. The more I talk about it with other people, who are business people themselves, the more irritated I get about the whole thing. Why is it that if you're not charging a company tens of thousands of dollars for a development project that you're not taken seriously?" I've always wondered about this, myself. This practice seems to contradict common sense. Is it that higher prices imply a certain degree of quality and/or assurance to managers? Do you think that businesses might be better off if they took a risk and tried the lower end of the costs spectrum?

"I recently had a the chance to bid on a contract, which I didn't win because of my estimated project cost. The winner of the bid had an estimated cost of $15,000 whereas my estimated cost was around $5,000 for the same project. The contract was not a complex project: a system comprised of database-generated web pages, with file submission and minor document management features.

I had, in about 8 hours of preliminary work, 50% of the website and associated back-end completed and had the rest of the site roughed out for what they wanted. The work is simple and I think almost anyone who has done similar types of site designs would agree with me.

The reason I got for not winning the project was that my proposed bid was seen as too low.

Does this make any kind of sense to anyone? Why would a company prefer to spend $15,000 on a project instead of $5,000."