Figure Costing models Firm Fixed Price Contracts

This type of contract favors the project manager and the solution provider, even though the risk is placed on the solution provider to deliver against what was quoted. This risk works well if the project manager has a superior knowledge of the solution type being undertaken. If the project manager cannot deliver the solution as quoted, then the solution provider, not the client, accommodates the risk.

For example, let's assume the client approves a quote of $126K for a project. However, at project completion the costs exceed the $150K mark, and the project manager must explain why such a loss occurred. The client will not pay the difference, as they only agreed to the $126K quote. However, if the project is managed successfully and can achieve the required gross margin (profit margin), the solution provider will be extremely satisfied and it often happens that project managers get suitably compensated for achieving these financial margins.

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