Why Fixed Bid Contracts are Awful for Web Design and Development Projects

John Reeve | October 19th, 2012 | , , , , ,

The Web design and development industry is often characterized as being on the bleeding edge of technology. Web designers pushing the limits of HTML and CSS  to create new interactive experiences. Web developers bending servers, databases and code to deliver faster web-based apps. The flexibility of the technology powering the web enables us to respond immediately to change. Progressively pursuing new trends and technologies is one of the best things a web design agency can do. So why is it we still insist on signing fixed bid contracts when doing web design and development for our clients? Think through the following observations the next time a fixed bid scenario arises.

Why Fixed Bid Contracts are Awful for Web Design and Development Projects

Scope is More Than an Idea

A fixed bid contract requires an airtight scope. This means the exact requirements of the project are defined in such a way that both you and the client are clear on what is being built. But where do you start? The client usually doesn’t know enough about their own needs to define them. They probably have an idea, but nothing close to concrete. They are going to need your insight.

You will spend a significant amount of time consulting with the client — what some agencies refer to as a “Discovery” phase — defining as much of the scope as possible. In the process you will be advising the client on how to best adapt their needs to the Web. If you aren’t being compensated for that time you are giving away your expertise for free. You might recoup that cost if the client signs the contract, but you are otherwise wasting time. Time that could be better spent doing billable work.

Scope is Subject to Change

The trends and technologies that drive the Web fluctuate daily — making any scoped contract out of date the day after it is signed.

Web sites start out as an idea, a series of wireframes and design comps, and take on a life of their own as they are being developed. There are so many variables that are subject to change during web site development, especially if the project is being custom tailored to a client’s needs. A fixed web design contract makes it difficult to respond to these changes during web development.

Developing even the most basic eCommerce site can bring up mid-project changes. The client really would like to add a custom feature, and it turns out they really don’t need a blog. How do you respond?

Under a fixed bid contract you have two options. Go through the time consuming process of estimating and filling out change requests, or, tell the client it can’t be done because it’s “out of scope,” and they are going to have a blog whether they need one or not. Neither option is ideal for the client. The client would prefer the changes simply be made, that their needs be met, without the contract getting in the way.

The Market Value of Air

One approach to preparing fixed bid contracts is to estimate the market value of the project, instead of basing the price on estimated effort. This approach falls apart quickly when developing custom web sites or when the client realizes they want to change up their original concept.

It is incredibly difficult to estimate the market value of something that does not exist. Even if it is something as common as a Content Management System or an eCommerce site, the market value of these is going to differ greatly from agency to agency, and from client to client.

The Age of Lean Startups

There is no question that we are seeing an unprecedented amount of online startups. The barriers to designing, developing and launching a web-based application are lower then they have ever been.

Web design and development agencies who want to target these startups as clients are going to have a difficult time getting them to market with a fixed bid contract. These lean startups have ideas, some good and some bad, that need to be vetted with a limited budget.  There is no time or budget for a “discovery” phase or scope.

To work with a lean startup, you need to assist them in getting their ideas to market as quickly as possible. Project requirements, or scope, is going to change daily, if not hourly.

A fixed bid contract is going to hinder your client’s success, and possibly your own agency’s. Especially those web design and development agencies that want to adapt to changes in trends, technology, and the marketplace.

What Should You do Instead?

A time and materials contract or a retainer agreement are the better way to handle web design and development client contracts. For more information on these, check out these blog posts:

Photo credit: kylepost

5 Responses to “Why Fixed Bid Contracts are Awful for Web Design and Development Projects”

  1. Galvin Technologies says:

    Good points — and ones we’ve been making for years. Really, they apply to almost any development project, however; these issues are not unique to the web.

  2. Design development says:

    Web design and development agencies who want to target these startups as clients are going to have a difficult time getting them to market with a fixed bid contract.

  3. AMS Technologies says:

    Some Good Tips:

    Project scope will change as per the clients requirement. So its better to go for hourly rates instead of fixed. In fixed price we couldn’t able to change the project cost, but in hourly based price we will be paid for every hours of extra work.

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John Reeve
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John Reeve

John is a co-founder, web designer and developer at Pelago. His blog posts are inspired by everyday encounters with designers, developers, creatives and small businesses in general. John is an avid reader and road cyclist.
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Jennifer Payne
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Jennifer Payne

Jennifer is the Director of Quality and Efficiency at Pelago. Her blog posts are based largely on her experience working with teams to improve harmony and productivity. Jennifer is a cat person.
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Michael Payne
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Michael Payne

Michael is a co-founder and product architect at Pelago. His contributions stem from experiences managing the development process behind web sites and web-based applications such as Intervals. Michael drives a 1990 Volkswagen Carat with a rebuilt 2.4 liter engine from GoWesty.
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