Re: Contracting moral dilemma

Subject: Re: Contracting moral dilemma
From: Arlen -dot- P -dot- Walker -at- JCI -dot- COM
Date: Wed, 5 Feb 1997 11:41:00 -0600

My potential dilemma is: what if I spend a lot less hours on the
project than I calculated for my bid? It is a fixed bid, but I still
based it on how many hours I thought it would take. If I go over the
amount of time I estimated, I certainly wouldn't expect to be paid
more...but should I return whatever portion that I didn't work for?

No. In a fixed-price contract you and your customer are making a bet. If you
can do it faster, you win, if not, they win (if you're completely accurate
on the estimate, you both win -- which is the target you're shooting for).
They are paying for the security of knowing the entire cost of the project
with certainty. Businesses also understand how things like this even out,
and how on the next contract you might have to put more in than originally
thought, and you'll have to eat the extra cost yourself. They realize that,
because that's the same world they deal in every day. (At least
manufacturing firms do, I'm not sure if this is a global fact of life, or
just a fact of life for firms who have to do long-term contracts for
materials and supplies.)

If you tell them you lucked out (or whatever) and refund part of the fee,
you'll tell them you aren't very good at estimating costs, and further, that
they probably could have found someone to accept the original contract for
less than you did. In either case, they may simply count themselves lucky to
have made this discovery about you at no cost to themselves and decide to
look elsewhere for the next contract.

Yes, you have to build good relations with your clients. But these
relationships cannot be bought, either by you giving them a break on pricing
or by them intentionally over paying you. It's possible to buy the chance to
start a relationship in this manner, but the only way you can actually build
the relationship is by performance, not fee structure. If the only thing
holding yopur client to you is fee structure, you're going to have to resign
yourself to *always* being the discount TW house. Not an enviable position
to be in.

(All this is premised upon the idea that the client accepted the cost as you
presented it in the original contract presentation, and has not come back to
you later and said that since this project is turning out to be so easy,
perhaps the deal should be renegotiated. If that happens, you have to decide
for yourself how important it is to keep this particular client happy. If
the client doesn't express that wish, however, there's no need for you to.)

I would definitely evaluate why the estimated cost was higher than the
actual cost, however, and use whatever knowledge I gained from that in
adjusting future bids (to *any* client, not just this one). You never can
tell when just that small adjustment will mean the difference between
walking out the door empty-handed or with a signed contract.


Have fun,
Arlen
Chief Managing Director In Charge, Department of Redundancy Department
DNRC 224

Arlen -dot- P -dot- Walker -at- JCI -dot- Com
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