Sam Hartman (hartmans) wrote,
Sam Hartman
hartmans

fixed price vs time and materials contracts

There's a lot of reluctance for consultants to enter into fixed-price contracts. There is concern about cost overrun possibility especially when tasks are poorly understood or when the project may change during execution. Yet the same people are often willing to enter into a timeand materials contract with a strictly enforced budget cap. In theory if such a contract goes over budget, the consultant could stop and leave things hanging. In practice, this rarely happens; there are often acceptance clauses for quality of work that require things be in a deliverable condition and there is often a strong desire to spend the time it takes to make the client happy, even if some of that time cannot be recovered. Hypothesis: people often don't rationally asign value or risk in these situations.
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