Jason G. answered • 03/22/19
Lead Scheduler for Major IT Program / Expert MS Project User
That is a tough situation. I have worked on cost and time/materials contracts and fixed price contracts. If the work is clearly defined and understood, then fixed price is the way to go. If the work is not understood, it is vague, or it is not clear what the end product will be, then cost or time/materials should be used. As a buyer, we favor fixed price. All the cost risk is on the contractor. I am getting my product at the negotiated price. Very little risk for me. In a cost or time/materials agreement, the cost risk is transferred to the buyer. Now I have to scrutinize all costs to ensure they are allowable. And I also have to ensure the contractor is motivated to finish since the buyer now pays for slow work or delays. So both types of contract agreements have their place. And I can see why your boss wants fixed price. It puts the buyer at ease and it is easier to secure a contract. And the buyer won't have to scrutinize all your submitted costs. So your boss is kind of right. But if the requirements aren't clear and you aren't sure what the end result will be, then it makes sense to negotiate a cost or time/materials agreement. So in that environment, your boss could be kind of wrong.
The fact that your organization rarely sees a profit on fixed price contracts could be the result that your organization simply doesn't estimate the work/costs well, your organization is selling its services at cost, or your organization is using the wrong contract type. Could be any of these. But priced correctly and in the right environment, fixed price should generate a profit that is fairly well understood.
