Firm Bid vs Cost- Plus; It’s a matter of trust
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 production house bids. It has an all inclusive nature that guards against cost creep, locks a firm cost into the overall production budget and removes the headaches and resources required to manage back-end reconciliation.
Yet, many clients make a conscious decision to move away from firm bidding.
Ultimately, this choice boils down to a lack of trust.
Clients who move to a Cost-Plus model often have a deep down belief that firm bids are laden with unnecessary fat and are susceptible to unintended bias or even outright manipulation. In their eyes, a Cost-Plus model provides them with a more efficient way to manage overall costs.
However, what they may fail to understand is 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. Beyond that, they may not realize they are actually paying for the additional production house and agency resources required to manage this process.
Lastly, from an overall budget perspective, this post-reconciliation work can take several weeks or even months to complete which keeps available production dollars in limbo for a longer than desired period.
So how does a client gain more trust in the Firm Bid process?
It really starts by becoming more comfortable with the bid spec and your cost target.
The reality is that budgets and creative are typically developed independently of one another. In fact, the client usually provides a budget to the agency well before creative development has even started.
The agency then creates a rough costs that, for the most part, is just a simple allocation of the budget number into the various components of the production (ie. shoot costs, talent, post production), This creates an arbitrary cost target for production houses and uncertainty for clients on whether the shoot cost target is based on the actual scope of work of the approved concept.
And with regards to the bid spec, unfortunately as agencies rush into bidding, there is often a lack of upfront diligence, alignment and client involvement. Prior to the start of bidding, more work has to be done to minimize the ambiguity in the bid spec so that the bid process can be fair and transparent to all parties.
Once proper diligence on the bid spec is complete, an appropriate production house cost target can be created; one that that is firmly rooted in the actual scope of work.
Only by fixing these elements can skeptical clients improve their trust in the Firm Bid model.
The Hybrid Model - the rightful place for Cost-Plus.
First off, 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 prior to the start of the bid process.
This allows you to create a base price for items that have a higher level of uncertainty to them and then properly track any additional costs that may arise.
By leveraging Cost-Plus in a Hybrid approach, the back-end reconciliation is contained to specific areas of concern thus reducing the overall workload and effectively speeding up the entire process.
Intrigued? This is how we can help.
Haynes-Vozza is a marketing production consultant that specializes in large scale video. We leverage a unique blend of production, procurement and marketing expertise to help our clients get the most of their production dollars.
Beyond delivering significant cost and time efficiencies, our common-sense approach helps clients build standardized processes for use across all external and in-house creative partners. We can help ensure a well-defined bid spec is in place and that an accurate cost target is created prior to the start of bidding. This helps to build alignment and transparency amongst all key stakeholders and can help strengthen an organization’s trust in the Firm Bid model.
Learn more about our common-sense approach.