How do you manage risks when using fixed-price contracts for projects?

Scope change is in many cases an opportunity to increase the profit for Contractors. Extra engineering, extra scope of supply. It is critical to have under your control a solid team of engineering and an active procurement dept. ready to take onboard new challenges in short time. It is clear that large contractors have a stronger network of manufacturers and suppliers.

You should also consider leveraging robust project management methodologies in fixed-price contracts. ?? Breaking the project into defined phases, assigning clear deliverables, and tracking milestones can clarify expectations and reduce ambiguity. ?? Regular review meetings foster alignment and swiftly pinpoint scope deviations. Using comprehensive management tools aids in timely scope detection. ?? Communication is paramount: using real-time platforms bridges gaps between client and contractor, ensuring clarity and reducing misunderstandings. ?? Emphasizing mutual trust and clear objectives can truly anchor a project's success.

In my experience, beyond merely defining scope in fixed-price contracts, deeper intricacies matter. ?? Diving into detailed specifications eradicates ambiguities and fosters precision. ?? Robust change control mechanisms ensure any alterations remain systematic, preventing unforeseen challenges. ?? Holding client workshops is key, fostering mutual understanding and curbing later disputes. ?? Tying payment milestones to specific deliverables maintains project trajectory and encourages adherence to scope. ?? A thorough strategy encompassing detailed specifications, collaborative discussions, and systematic change management is indispensable for managing risks in fixed-price contracts.

Comprehensive Contract Definition: Ensure that the contract is well-defined, specifying the project scope, objectives, deliverables, timeline, quality standards, and any special requirements. A clear and detailed contract minimizes misunderstandings and disputes. Thorough Scope Analysis: Conduct a detailed analysis of the project scope to identify potential risks and ambiguities. Clarify any vague or ambiguous requirements with the client before the project begins to avoid scope creep.

Contingency Planning: Develop contingency plans and risk response strategies for identified risks. For example, set aside a contingency budget to cover unexpected costs or have a change management process in place to address scope changes. Detailed Cost Estimation: Ensure that your cost estimation is as accurate as possible. Involve subject matter experts in the estimation process to minimize the risk of underestimating project costs.

Time to estimate the costs is always short, mostly because last minute information is coming in the eve of bid submission. It is critical to have experienced team working to last minute on dossiers. It is not about accuracy - your numbers will be different from what you are offering. Some times, competitors are just bluffing - betting on additional changes of scope.

Contractors should establish strong teams of contact with Client - Project Controls, Procurement, Contracts Management. This should offer to Client a solid, credible image.

A lot of negative situations will fall under the force majeure clause. The rest, usually are endemic to regions and countries (ex - work visa in GCC) and so, are not real risks.

The new ISO 9001 :2015 open a generous vision over management of processes - risks and opportunities. A good manager will be ready to see the opportunities and to find ways to exploit them.