How do you calculate fixed price contracts?

[Donkmeister]

In my professional life, I am a variety of project manager. One of the areas I cover is supplying quotes to customers. These quotes are typically around the £100M mark, some go into the billions. Large teams of subject matter expects spend a long time coming up with all the work that is eventually distilled into a nice fixed figure.

One of the tough areas is risk. You need to have a contingency to cover things that MIGHT crop up. So, get people to think up all the doom and gloom, and then we sit in a room and figure out how likely it is to occur and what it will cost if it does, and is there anything we can do to prevent it happening or lessen its effect. Seems to work quite well so far!

I was wondering - how is it done in the trade? If someone asks for a fixed price, do you look at a job and think "Simple, should only take me a day... but if I lift the floorboards and find a real mess it might take me a week or more"? Do you:

a) quote for just one day and keep your fingers crossed
b) quote for the whole week, just in case
c) tell them you can't give a fixed price until you've got the boards up?
d) ????

 

[dpsservices]

me personally would looked into all aspects if floor boards needed lifting lift them also explain to the cutomer if things dont go according to plan then there might be a bit more to pay but do as much homework as possible.. also for doom and gloom speak to joe 90 he will keep you entertained.

 

[Goldspoon]

Written into Terms and Conditions (signed by customer on larger jobs):

Outline of work
Variations requested by you: If you wish to make alterations to the work as specified in the Work Specification then additional costs may have to be added to your invoice (after first being agreed between you and (XXX Plumbing).
Variations caused by circumstances: It is possible, during completion of the work, that unforeseen problems are discovered that are not included within the Work Specification (potential problems that ARE foreseeable will likely be listed in the Work Specification). Any such problems will be notified to you as soon as they arise. If any of these issues prevent completion of the work outlined in the Work Specification then you will be informed, in advance, of any additional costs.

 

[Donkmeister]

OK, that makes sense. So you fix a price against the spec, and treat each unforeseen issue as it arises. Presumably in reality you might use your discretion to do small additional tasks where it is required so you can get on with your job (for example, if you're an electrician wiring in some extra sockets, renewing a short section of cable where you find it's been chewed by a rodent)

So, is there any mileage in asking for fixed price contracts, from a Customer's point of view? I like the idea of fixed prices, where I know what I will be paying from the outset... but it sounds like that just isn't a viable option for a tradesman unless he whacks a massive contingency on everything "just in case".

In my field, we usually identify large numbers of potential problems so what generally happens is that you calculate a budget to cover them, assuming that some will happen and others won't.

 

[Goldspoon]

In my experience customers almost always want a fixed price on jobs over a day or so.

Advantage to customer: no surprises and no "fuming" at tradesman chatting on mobile/long meal break/slow worker etc.

Advantage to tradesman: stress levels down (nothing worse than a job taking longer than expected and customer hovering watching fuming).

 

[jefoss]

i personally tell customers that its this price for this work., if anything else comes up unexpected we will talk about it when it comes up.

never had a problem with that (touch wood)

 

[Thermo]

Its no different to the process for larger contracts. I used to be a qs in my early days, and i use the same method for pricing the work we do now. Materials, labour, plant overheads and an element of risk. You can look at a job and pretty much know what will happen on it, but i make it abundently clear in my quotes what is included for. Any unforseen surprises and we have to look at the cost implications of it with the client.

 

[jono_h]

If there are unknown elements to a job I have been known to give a customer a maximum price for the job. If it's a real pig I may still lose out, but if it's easier than expected I can invoice for less.
This works well with my regular customers who trust me, and I haven't yet met a customer who isn't happy to pay less!

 

[holmslaw]

Work out the exact cost of doing the job and multiply by 2.5.

If exact cost is £40K fixed price is £100K

 

[WabbitPoo]

It's a difficult problem though, because in my neck of the woods and in my industry, every pound counts, and lumping on a large contingency can make or break a deal. After quite a few years now, I am able to bite the bullet and quote bigger, knowing that it may well price me out of the job. Better that than losing money on a job (as I used to do sometimes when starting out)

 

[bathstyle]

The vast majority of customers will be understanding when unforseen extra work crops up on a job, every now and again you get an 4rsehole that simply wont pay any extra even though the work that is completed is above and beyond the original Quote.

In these instances it helps if you believe in Karma.

I try to keep customers informed every step of the way and lay the groundworks that the work will be extra but at a reasonable cost, you don't want to start scaring customers on the first day of work