Advertising is in decline.

Pundits and observers blame it on everything from the million channel universe and digital-era tilting of the scale from persuasion to information, to the muscle of consulting behemoths pushing agencies out of the game.

Cal Harrison has another problem to add to the pile. Price-based bidding.

According to Harrison, the preponderance of RFPs with cost criteria has turned bidding for projects into a lowest-price-wins-all battlefield. The result, unsurprisingly, is a toxic environment where the winning agency feels forever shortchanged, the client sees hidden costs in everything, and mistrust and acrimony rule. Inevitably, the relationship ends prematurely, with the client storming off in search of a better – aka less costly – agency.

Harrison came onto my radar as a result of a thought-provoking TEDx talk he delivered on the subject. I took the opportunity to reach out to him for a chat that covered how to turn RFPs into a Qualification Based Selection process – a methodology being used to great acclaim in the US. (You can check out his book on the subject here)

If you’d like to listen to our conversation, simply click play. And if you’d like the Coles notes highlights, read on.

Qualification Based Selection

QBS is a concept that comes from the world of engineering and architecture, but is beginning to see use in the bidding process for ad agencies.

In essence, QBS eliminates price from the bidding criteria. Instead, it hones in on relevant experience and qualifications, with the goal of finding the partner best suited to the job.

As Harrison explained, the concept works because it fosters innovation and partnership, not nickel and diming.

There’s nothing new or revolutionary about it. In fact QBS reflects the methodology employers use to hire employees. I check out your qualifications and your experience, we determine if we like one another, and I lay the proposed salary on the table. If you accept, you come aboard. If you don’t accept, the search continues. No hard feelings, no harbored resentments on the job.

tasks vs outcomes

In an ideal world, agencies would be remunerated based on the outcomes they create. This may seem pie in the sky (and impossible, given there are so many x factors between the moment a consumer sees an ad and the moment they purchase), but it is entirely possible to hire agencies based on outcomes.

Let’s say a client wanted to launch a new chewing gum and take it to #1. In an RFP scenario, the client would describe the challenge and let the bidding war begin. The victors would probably be cheapest, but would they be the best for the job? Unlikely.

In a QBS scenario, on the other hand, the call for contenders would highlight the need for applicants to demonstrate their previous experience taking edible products to #1. There would be a far higher chance of awarding the work to the most deserving agency.

This ‘outcome’ scenario is too fuzzy for the RFP bid process. After all, getting to an ideal outcome may take several runs at the challenge – a cost no winning agency could afford on their lowball budget. As a result, RFPs most often take the form of task lists in order to make the work expectation more tangible. These task lists eliminate a core competency of good agencies – the ability to devise a creative way to get the job done.

The illusion of savings

Do clients actually save money using the RFP bid process? Not according to Harrison.

He illustrated the point with a terrific story he heard from an architecture firm. This firm was bidding on a $50,000 project. By the principal’s estimation, preparing the bid was going to cost a whopping $20,000 in hours. Did I mention RFPs are generally created by bureaucrats and compare in complexity to tax codes? Kidding. Kinda.

It gets better. The principal discovered 37 other firms were in on the bid. That’s 38 x $20,000 spent pitching, or $760,000. The entire project – not just the architecture – was budgeted at $500,000. The firms were spending 1.5 times the cost of the entire project, simply so that one of them could win the work. And the winning firm was probably going to lowball, meaning they’d get the project for $45,000.

When Harrison relates this story to buyers of architecture services, they shrug their shoulders and tell him it’s simply a cost of doing business for architecture firms. To which Harrison replies that it’s a cost of business the buyers were paying for in the form of overhead charged by the architecture firms. That is, the buyers pay an inflated cost – even if they get a lowball bid – because the ‘going rate’ of architecture firms is padded with overhead ballooned by bids.

stop the insanity

Harrison pointed out that in the US, the Brooks Act eliminated price bidding from RFPs in architecture and engineering. In Canada, there’s a growing movement toward the QBS methodology. The results – higher calibre work with fewer cost overruns – are welcomed by both buyers and suppliers.

So can QBS save advertising agencies from becoming lowballing commodity providers? It would certainly be a step in the right direction.