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  • Writer's pictureHaynes-Vozza

Firm Bid vs Cost- Plus; It’s a matter of trust

Updated: May 10, 2023

If you are not using a Firm Bid model, you need to ask yourself why.

Firm bidding is by far the easiest way for clients and agencies to manage large production house bids. It has an all-inclusive nature to it that guards against cost creep while removing the considerable headaches, resources and time required to manage the back-end reconciliation process once the job has been completed.

Yet, some make a conscious decision to move away from firm bidding.

Ultimately, this choice boils down to trust.

Organizations who move to a Cost-Plus model often have a deep down belief that production house costs are higher than they need to be. In their eyes, a Cost Plus model provides them with more control and with that more efficiency.

However, the implementation a Cost-Plus bidding model does not necessarily guarantee better cost efficiency as it does little to prevent production houses from requesting additional budget for changes in individual line items.

Beyond that, the post-shoot reconciliation work in a Cost-Plus model can actually be quite burdensome on the production house, the agency and even on their own resources.

Advertisers may also not realize that they pay for the additional production house and agency resources required to manage the reconciliation process and that this work can take several weeks or even months to complete which can keep available production dollars in limbo for a longer than desired period.

So how does a client gain more trust in the Firm Bid process?

To start, we would agree with those advertisers who believe that production house costs are higher than they need to be.

In fact, our work continues to show that organizations consistently overpay for production house services by as much as 25% or more.

However, we do not believe this inefficiency is a direct result of the Firm Bid model.

The real culprit is the traditional production house bid process itself. It is a dated process that has an inherent backend nature to it that limits transparency and artificially inflates costs. This is then magnified by the number of productions done every year, the number of different creative partners involved and the number of different internal teams steering the individual productions.

With that, the only true way to tackle inefficiency is through improved education and process optimization efforts with the goal of providing working teams with the tools and awareness that allow them to guard against the pitfalls of the traditional bid process.

This would entail creating a thorough end to end time-based production house bid process and standardizing it across all creative partners. Critical to this would be re-examining areas such as budget setting, bid spec approvals, cost target setting and ensuring a competitive bid list.

Only through the rigour of process optimization can skeptical Client’s drive significant cost efficiency in their bid process and gain a higher level of trust in the Firm Bid model.

The Hybrid Model - the rightful place for Cost-Plus.

To be clear, we believe Cost-Plus does have a place.

It can be a very effective tool when it is applied to specific areas or line items within the bid that may have not been completely “firmed” up when bidding began.

This allows you to create assumptions and a base price for items that have a higher level of uncertainty to them and then properly track any additional costs that may arise.

As well, by leveraging Cost-Plus in this manner, the back-end reconciliation is contained to specific areas of concern thus reducing the overall workload and effectively speeding up the process.

Intrigued? This is how we can help.

Haynes-Vozza is a project-based marketing production consultant that specializes in the procurement and management of production house services.

We leverage extensive end to end bid management experience and a highly unique blend of procurement, production and marketing expertise to help organizations quickly identify and remedy inefficiencies in their production program so they are in a better position to manage these costs moving forward.

Learn more about our common-sense approach.

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1 Comment

Sep 08, 2023

Interesting idea. Say for example you want to have location and casting as costplus, equipment firm and shoot labor firm. What's the prevent a production company from abusing the costplus casting budget and sneaking in some additional costs to cover equipment they underbid? Or on the other side for the agency to abuse the shooting labor with increase in casting asks (requiring a 2nd AD, additional makeup, additional food/transpo costs).

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