Fixed price contract for wrong type of project

Many clients prefer fixed price agreements for projects. However, not all projects are suitable for these types of agreements. Only projects where the design phase has been completed and where it is completely clear what is going to happen for the rest of the project can be carried out under a fixed price agreement. This is not to be preferred for projects whereby there is still some uncertainty because this can become a source of friction, and a client who has burned his fingers will be inclined to limit the damage by skimping, whether qualitatively (by using junior employees) or quantitatively (all areas of doubt are contract variations). Working with fixed price agreements requires professional, mature organisation on both the side of the client as the contractor. A good contract manager will deal with a price war as the situation requires. Sometimes the cheapest option by far is invoicing by the hour. For example, when project management is covered in-house and there is sufficient clarity about the work to be carried out.

If it concerns large risky (building) parts of the project, whereby knowledge of the organisation is limited, then fixed price component types will be looked for. However, a fixed price alone is not enough. There will also have to be incentives to motivate the supplier to deliver the right quality. These fixed price, fixed date agreements can take the form of strategic cooperation for large – and for the organisation, risky – projects.