The 'fixed price' myth

‘Fixed price’ contracts aim to limit costs and to transfer the risk to the supplier. This works very well for projects in which the deliverables are defined clear and unambiguous – leaving no room for interpretational differences. But for many projects the deliverables are far from clear. The supplier provides a quote using numerous assumptions and selecting a most cost-effective solution. During the course of the project, countless decisions need to be made. For the intended user community there is no incentive to go for the least costly option: the project costs are fixed, so filling in details is considered to be ‘part of the deal’. The supplier however, will consider the more elaborate options as additional scope – and will raise change requests to cover the extra effort. Whether the client agrees and extends the budget or the supplier pushes for the least-but-still-fitting-the-requirement option – the client will feel that the fixed price is not adhered to and that he is not getting value for money. In other words: the fixed price is perceived to be not so fixed after all.