Why Fixed Bid Projects Are More Costly

Nej Gakenyi
December 25, 2014 10 min read

When businesses identify a need to develop their website and begin an agency selection process or tender, as a way of minimising risk, they will often look for a fixed cost bid proposal. Very often, only agencies that are willing to agree on a fixed bid will be considered for the project.

Although this may seem like the least risky and most cost effective approach, it can often be the most expensive option for all parties involved and can significantly reduce the likelihood of success on web projects.

The nature of web projects is such that requirements can frequently change and the solution needs to be adaptable enough to keep up with the ever changing technology and what is considered best practice. Furthermore, in reality, many businesses don’t really know exactly what they want. Although most businesses believe to have a clear understanding of what they need from their website, the way in which these high level requirements are delivered through an application will almost certainly change or adapt throughout the life cycle of the project. Most digital practitioners agree that an agile project methodology needs to be applied.

Now, let’s look at the interest of each party involved (typically the agency and the client) and more importantly the conflict of interest that some contracts can create.

In the vastly competitive world of digital marketing agencies, it’s not uncommon for an agency to agree to a fixed bid approach in order to be considered for an opportunity. After all, it is the clients that typically have the luxury of choice and agencies that refuse to take this approach can put themselves at a competitive disadvantage within the industry.

From the outset the interests are as follows:

The Client’s Aim is to ensure that all their requirements are met, that the project is delivered within the agreed costs and time frames and that everything is implemented in the best way possible (with all the bells and whistles, to coin a phrase).

The Agency’s Aim is to ensure that they deliver the requirements that they are contracted to deliver as efficiently and cost effectively as possible but a way that still continues to meet the requirements of the client (in line with the high level definitions agreed in the contracts).

This approach means that full discovery or design requirements need to be agreed upon before any development work can actually start and a lot of time is wasted on trying to estimate the effort required. This in itself involves a lot of guesswork and the estimates are likely to be exaggerated in order to minimise risk, not to mention the huge amount of budget and time that is wasted during this process.

Furthermore, throughout the project life cycle, Project Managers spend a significant amount of their time verifying requests and filtering what is in and out of scope. The Project Managers will aim to prove that as many requests as possible are out of scope in order to ensure that scope creep is kept to a minimum. In addition to burning up significant amounts of time and budget, this creates a lot of negative communication between the stakeholders throughout the project and can lead to mistrust and frustration at both ends.

So how do we maximise the chances of success on a project whilst ensuring that the criteria are met in an efficient manner?

The answer to this lies in the recognition and identification of the three major constraints that apply to any digital project:


TIME FRAME – When does the project need to be completed?

BUDGET – If identified, what is the maximum expenditure for this project?

SCOPE/REQUIREMENT – What are the criteria for the end result?

Clients will often look to ‘fix’ or agree on all three of these constraints as part of the contractual negotiations and will look for an agency to provide a fixed estimation on all points. This is where we get into the impossible sphere and any agency that claims to be able to commit to all of these elements is at best misleading the client and at worst, simply saying what they need to say in order to win the business.

The solution is simple, any one or two of these constraints can be fixed but at least one must be flexible if a truly agile methodology is to be applied.

For example:

If a client says they MUST get their new website live by a certain date and their budget for the site is limited, that’s ok. However, the agency can only guarantee to meet that request if there is some flexibility in the scope of the website.

If a client says they MUST get their website live by a certain date and it must have all of the required functionality without exception, that’s also ok (assuming the timeframes are realistic). However, there must be some flexibility in the budget as the Agency may need to put an additional 10 developers (above what they would usually do) on the project in order to ensure a timely delivery and fully functioning solution.

Realistic expectations lead to successful projects and satisfied clients.

Written by Nej Gakenyi

CEO and Founder