What is a Fixed Bid?
A fixed bid is an agreement to deliver a fixed set of features on a specific date for a fixed price.
Fixed bidding is the primary method most products are bought and sold from automobiles and MP3 players to houses and repair services. At first it seems to make perfect sense that website development and online marketing should be procured the same way. However, the complex nature of web services work makes fixed bids counterproductive and risky.
Differential advantage
Very few products we buy in our everyday life are truly customized. Most are completely fixed such as TVs and electrical power. Some products can be personalized, for example, adding options on your new car or putting your son’s name on a birthday cake. Ultimately not even those items are truly custom products. The manufacture’s product development gurus have chosen for you what you will value as the best features. Traditional products are pre-packaged around mass market desires.
A website or online marketing campaign of even modest sophistication must be custom tailored to client needs to be effective. The web is a highly efficient and competitive market. Websites get results by being uniquely better than others. While you don’t need your MP3 player or even your Lexus to be better than all the others, a website must best leverage each owner’s unique competitive advantage to be successful.
Fixed bids commoditize your website. Operational efficiency, the key to profitability for fixed price goods, is achieved by building the same thing over and over again. From the vendor’s point of view, the best way to make a profit on fixed bids is to make all websites and online marketing campaigns as similar as possible. Innovation and differentiation, keys to driving a leading web presence, are the enemy of operational efficiency.
Essential Complexity
Development of modern websites is akin to traditional software development. Luckily software development has been around many decades longer than web development. After decades of experience with software projects going significantly over budget and over time, top development experts have come to one conclusion: development is hard.
In the first few decades of software development significant progress was made in estimating costs and risks. However, by the 1980’s improvements in accuracy began to slow while most projects were still considerably over budget with significant delays. In 1994 fewer than 1 in 5 projects fulfilled all the promises of their initial requirements. The conclusion is that software development exhibits essential complexity.
Proper and complete solutions to complex problems cannot be predicted with any degree of certainty. The traditional software industry has come to realize this and has since undergone a mass transition to agile software development. Agile methodologies recognize that even with in-depth up front planning essentially complex processes cannot be estimated with adequate precision. Therefore risk is minimized and efficiency increased by implementing an iterative just-in-time strategy for planning and development.
Fixed bid proposals project a false sense of certainty. The 2009 Chaos report shows that two out of every three projects do not succeed in meeting original requirements. The average project is 45% over budget, 63% over in time to delivery and missing 1/3 of originally promised features.
Fixed Minds
Ultimately the only reason fixed bidding still exists is it is a prevalent yet outdated norm. There are five primary mindsets driving fixed bidding:
- Naive Newbies: Many web service providers are new to the business and do not have enough experience building professional grade sites to know how problematic fixed bid relationships can be. They have yet to learn that no sellable amount of padding can account for the aggregate of complexities.
- Quick Sales Artists: Some vendors know that over promising and under delivering is the industry norm and are more interested in making a quick sale now than delivering on commitments in the future. Often they are counting on the uncertainty of loose requirements to drive additional change orders and commissions.
- Command and Control Experts: These groups are experts at locking down projects. Scope creep is managed by rejecting new ideas. If the a client knows exactly what they need, is highly experienced at in-depth detailing of all requirements up-front, and the project is mundane enough to eliminate all complexity, the project can be delivered to spec. If not, be prepared for a series of change orders. However, be careful what you ask for, you just might get it. Businesses, stakeholder priorities and web trends change so quickly that often the right direction at the beginning of a project is no longer best at the end.
- Premium Artists: These groups account for innovation and uncertainty by proper buffering of effort estimates. Accurately buffered prices are shockingly high, so only a few brands can get away with it. This is often seen with web divisions of large ad agencies and IT consultancies or hot niche shops. Armed with excessively large budgets many of these groups can deliver on fixed bids. However, good, reasonable clients are paying for the uncertainty of those that are difficult to serve. Ultimately clients end up paying a high price for having to shoulder the full burden of uncertainty.
- Defeated Innovators: This describes typical seasoned, ethical web shops and consultants. The defeated innovator knows that fixed bids have a distinct probability of missing initial promises resulting in strained client relationships...but it is the industry norm. Beaten into conformity, their thinking is "we have to do it to be competitive." Thus this self-defeating cycle continues.
Conclusions
Fixed bids have created a self-perpetuating cycle of misaligned and missed expectations. Ultimately clients get burned by uninspired, low quality work or they over pay for sub-optimal methods of generating true innovation. Web experts' great ideas go unheard and unrealized while they are forced to work longer hours at less pay.
This site is for the defeated innovators and the rest of you who want to come along. It is for you who understand the challenges and have felt the pain. It's for those of you who know there needs to be better way, but who are unaware of the alternatives. Here are the alternatives.
