Robert Merry is an independent Stone Consultant and Project Manger who also runs training courses on project management. He continues this series of his thoughts on successful estimating and project management with a discussion of: Fixed Price Contracts.

Fill your boots, its fixed price contract time.

A client asked me how does he claim for any extras if he has signed up for a fixed price contract?

The short answer is: you can’t.

A less welcome question is: “Why did you sign the contract in the first place?”

The answer: “Well, work is short and we need to pay the bills. You know what it’s like.”

Oh yes. I do.

A fixed price contract is sometimes offered by the client after they have gone out to the market with a project and have received wildly different prices. There may be elements of the contract that are not clearly specified and different contractors have identified different solutions.

The client wants cost certainty and so invites preferred contractors to discuss a fixed price for the finished project. The client might be prepared to pay a little bit more for the work in the expectation that they will not have to pay any more than that in the end.

Now here’s the gamble. If the contractor thinks he can complete the work in the time for a lot less than the fixed price and make a shed-load (or at least a good profit) he might well grab the opportunity.

One way a contractor can complete the work for less is by using their own supply chain, possibly tweaking the specification to suit their suppliers at cheaper prices and, most importantly, by having complete control over the sub-contractors they use.

If they know what the client wants to achieve and think they can achieve it for a lot less than the client is expecting to pay, then you might think it is a gamble worth taking.

For the sub-contractor the same rules apply, in as much as the contractor will want cost certainty from you. But the only way you can give this, without losing items of clothing (ie your shirt) is to know for certain the specification will not change. Or, if it does, that you can prove the new specification is substantially costlier than the original.

The specification must be clear from the beginning. If it were to read “a white marble with a grey vein”, those of us in the interior market would mostly assume a reasonably good sample of Bianco Carrara is fine.

But let’s assume for a moment that our client is of Southern European heritage and he was referring to Pentalicon, which is twice the price.

“Its going to cost me twice as much,” you cry.

“But that’s the specification… and it’s a fixed price contract, remember? Tough. Get on with it.”

You either withdraw, lose the work and enter the courts for redress, as will the contractor against you, or you duly “get on with it”.

The contractor wants cost certainty and will not entertain any extras in terms of labour, time, materials or finishes because it is mighty difficult for them to go back to the client for any extras. The courts are full of contractors arguing with clients about extensions of time and resultant additional costs on fixed price contracts.

So, if you are tempted to ‘fill your boots’ make sure the specification, time frame and contract are clearly defined, and build in contingencies for when things don’t go according to plan.

Or else you might just end up with wet feet.