Re[2]: Contracting moral dilemma

Subject: Re[2]: Contracting moral dilemma
From: Arlen -dot- P -dot- Walker -at- JCI -dot- COM
Date: Mon, 10 Feb 1997 13:23:47 -0500

> It seems that some of you people are of the opinion that if
> the client was *foolish* enough to accept the high estimate in the first
> place, well too bad for them. An estimate is a gamble...! Anyway, next
time,
> it could be in their favor. So run to the bank before they change their
> mind!

Rather prejudicially worded, counselor, but close to the mark, nonetheless.

My answer was based on the impression, gleaned from the original post, that
the number being bandied about as higher than the actual cost was *not* a
mere estimate, but the actual amount specified in the contract.

Contracts are supposed to be equally fair to both sides. Would you sign a
contract which adjusted your payment down, based upon the actual cost of
the project being less than anticipated, but would not adjust it up if the
actual cost of the project was higher than anticipated? I wouldn't, that's
for sure.

But that's exactly the position you place the contractor in if you say the
payment should be lowered if the projected costs turn out to be lower.
There's nothing in the contract which allows him to raise the payment if
the estimates are too low. (This is an assumption, based on the posts I've
seen on this subject.) This one-sided approach places all the risk on one
party.

Now, if the original contract gave the writer the option of raising the
payment due him if costs made it necessary, then by all means he should
lower the payment due him when costs make it possible. But, from my
understanding of the situation, that's *not* in the contract.

This has nothing to do with one side or the other being foolish. It has
everything to do with equal treatment and shared risk for both parties
involved in the contract.

As for the gambling analogy, yes, that's accurate. All business
transactions are gambles. You analyse the risk and the reward and you take
your best shot. Some you win, some you lose. If you win more than you lose,
you get to keep playing (AKA stay in business). The only thing that helps
us out is that life isn't a zero-sum game; it's possible for both parties
in a transaction to win. In this specific case, the writer wins because the
costs are lower than anticipated; the business also wins, because the
product delivered is worth to them the money they paid out for it. (If it
isn't, and the product is up to specs, *then* the question of being foolish
arises.)

Like I said, if the contract was written so that he could unilaterally
raise the price if costs warranted it, then he should also unilaterally
lower it. But if he could raise the price based on costs, then it's not a
fixed price contract, is it?

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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