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What happens when a fixed-price project hits a delay? Presumably the bidder eats the loss at first but what happens when they run out of appetite? Does the pr

by mulmen 5y ago

What happens when a fixed-price project hits a delay? Presumably the bidder eats the loss at first but what happens when they run out of appetite? Does the project just... end?

timdiggerm 5y ago
You mean if they don't deliver the product after they signed a contract?
smnrchrds 5y ago
I don't know what would happen initially, but eventually, the contractors wise up and start baking the risk of delays into their quotes.
- dr_orpheus 5y ago
  Yes, this definitely happens and is why in some situations people think fixed price contracts can end up costing more. Contractors will be extreme sticklers about their requirements on a project. So that if anything starts look off-plan or may impact something like a schedule delay they will say "nope, that's outside of our scope of work we need an extension/additional funding".
  - Goronmon 5y ago
    Contractors will be extreme sticklers about their requirements on a project. So that if anything starts look off-plan or may impact something like a schedule delay they will say "nope, that's outside of our scope of work we need an extension/additional funding". Yup, change orders are how deal with these issues when it comes to fixed-costs contacts. For better or worse, its almost impossible for a project to be perfectly specced out ahead of time. And anything that even comes close to looking like it conflicts with the spec becomes a change order.
    - sidewndr46 5y ago
      According to the article, this is how money is made on cost-plus contracts > About that “plague”: NASA has traditionally procured technology from industry using cost-plus contracts, which allow contractors to charge the agency extra for extensions and changes to their plans. From my experience, the author of that article has no idea what they are talking about.
dr_orpheus 5y ago
Theoretically the bidder eats the loss and assumes all of the risk in a fixed-price contract. Ending projects certainly is a possibility, but there are typically termination penalties within the contracts as well. If there is an unanticipated issue contractors will often try and get a contract modification because they consider it new scope of work or something like that.
bryanlarsen 5y ago
Yes. https://spaceflightnow.com/2020/01/22/boeing-withdraws-from-darpa-spaceplane-program/ https://spaceflightnow.com/2020/01/22/boeing-withdraws-from-...
- badwolf 5y ago
  More current fixed-price example, also from boeing: https://www.cnbc.com/2022/04/27/boeing-lost-billion-dollars-on-trump-air-force-one-plane-deal.html https://www.cnbc.com/2022/04/27/boeing-lost-billion-dollars-...
golem14 5y ago
Here's how simple me thinks about it: Cost-plus is just a lazy version of fixed price, where instead of accountants looking at details before new funding is released, there's automatic approval of overruns.
- teruakohatu 5y ago
  > there's automatic approval of overruns. That is not quite correct. Cost-plus specifies how charges are priced, it does not specify budgets. I could sell you pencils at cost-plus. How many pencils you buy is up to you, not I.
  - golem14 5y ago
    Sure, but these projects tend to be one-offs or at least small runs where the contract commits to say 10 SLS missions or something like that. Agreed that cost plus for something comparatively cheap like a new army rifle is probably different.
fergbrain 5y ago
They eat the cost: https://simpleflying.com/boeing-ceo-air-force-1-deal-mistake/ https://simpleflying.com/boeing-ceo-air-force-1-deal-mistake...
vkou 5y ago
> Presumably the bidder eats the loss at first but what happens when they run out of appetite? Does the project just... end? That's why these contracts go to large companies, as opposed to small ones. If a small company loses interest in finishing a fixed-cost project, they might go bankrupt, and leave the government up crap creek without a paddle. If a big company loses interest, they'll keep struggling along, because they can get hit with the stick of 'you'll never get another contract from us ever again.'
- tssva 5y ago
  > If a big company loses interest, they'll keep struggling along, because they can get hit with the stick of 'you'll never get another contract from us ever again.' It is an extreme and rare measure for an agency to ban a large contractor for lack of performance and in the rare cases it has happened to large contractors have almost always had the ban lifted upon appeal to the GSA. In most cases where there has been a failure to deliver substantial or primary responsibility can be laid at the feet of the government agency.
uberman 5y ago
Yes, the project just ends and it will end sooner than expected under fixed bidding as the government will almost certainly demand non-contracted changes mid-project that in my experience can have dramatic costs. Most government projects are structured and paid for in phases and there is no assurance that phase 2 starts at the end of phase 1. No approval to proceed means the project just "ends when it ends".
stonemetal12 5y ago
They get a bad CPAR (Contractor Performance Assessment Rating) and are banned from government contracting in the future.
quxpar 5y ago
Yes, and the government learns a lesson.
cryptonector 5y ago
> What happens when a fixed-price project hits a delay? It varies. Sometimes the cost of imposing a penalty specified by the contract would be so destructive to the project, and the project delayed but finished would still be worth more than switching vendors (if that's what the penalty would imply, due to bankrupting the original vendor) that the penalty gets waived. Besides, what happens when a cost-plus project hits a delay? Answer: we pay more and more and more and the project is delayed more and more and more.

by mulmen 5y ago

What happens when a fixed-price project hits a delay? Presumably the bidder eats the loss at first but what happens when they run out of appetite? Does the project just... end?

timdiggerm 5y ago

You mean if they don't deliver the product after they signed a contract?

smnrchrds 5y ago

I don't know what would happen initially, but eventually, the contractors wise up and start baking the risk of delays into their quotes.

dr_orpheus 5y ago
Yes, this definitely happens and is why in some situations people think fixed price contracts can end up costing more. Contractors will be extreme sticklers about their requirements on a project. So that if anything starts look off-plan or may impact something like a schedule delay they will say "nope, that's outside of our scope of work we need an extension/additional funding".
- Goronmon 5y ago
  Contractors will be extreme sticklers about their requirements on a project. So that if anything starts look off-plan or may impact something like a schedule delay they will say "nope, that's outside of our scope of work we need an extension/additional funding". Yup, change orders are how deal with these issues when it comes to fixed-costs contacts. For better or worse, its almost impossible for a project to be perfectly specced out ahead of time. And anything that even comes close to looking like it conflicts with the spec becomes a change order.
  - sidewndr46 5y ago
    According to the article, this is how money is made on cost-plus contracts > About that “plague”: NASA has traditionally procured technology from industry using cost-plus contracts, which allow contractors to charge the agency extra for extensions and changes to their plans. From my experience, the author of that article has no idea what they are talking about.

dr_orpheus 5y ago

Theoretically the bidder eats the loss and assumes all of the risk in a fixed-price contract. Ending projects certainly is a possibility, but there are typically termination penalties within the contracts as well. If there is an unanticipated issue contractors will often try and get a contract modification because they consider it new scope of work or something like that.

bryanlarsen 5y ago

Yes. https://spaceflightnow.com/2020/01/22/boeing-withdraws-from-darpa-spaceplane-program/ https://spaceflightnow.com/2020/01/22/boeing-withdraws-from-...

badwolf 5y ago
More current fixed-price example, also from boeing: https://www.cnbc.com/2022/04/27/boeing-lost-billion-dollars-on-trump-air-force-one-plane-deal.html https://www.cnbc.com/2022/04/27/boeing-lost-billion-dollars-...

golem14 5y ago

Here's how simple me thinks about it: Cost-plus is just a lazy version of fixed price, where instead of accountants looking at details before new funding is released, there's automatic approval of overruns.

teruakohatu 5y ago
> there's automatic approval of overruns. That is not quite correct. Cost-plus specifies how charges are priced, it does not specify budgets. I could sell you pencils at cost-plus. How many pencils you buy is up to you, not I.
- golem14 5y ago
  Sure, but these projects tend to be one-offs or at least small runs where the contract commits to say 10 SLS missions or something like that. Agreed that cost plus for something comparatively cheap like a new army rifle is probably different.

fergbrain 5y ago

They eat the cost: https://simpleflying.com/boeing-ceo-air-force-1-deal-mistake/ https://simpleflying.com/boeing-ceo-air-force-1-deal-mistake...

vkou 5y ago

> Presumably the bidder eats the loss at first but what happens when they run out of appetite? Does the project just... end? That's why these contracts go to large companies, as opposed to small ones. If a small company loses interest in finishing a fixed-cost project, they might go bankrupt, and leave the government up crap creek without a paddle. If a big company loses interest, they'll keep struggling along, because they can get hit with the stick of 'you'll never get another contract from us ever again.'

tssva 5y ago
> If a big company loses interest, they'll keep struggling along, because they can get hit with the stick of 'you'll never get another contract from us ever again.' It is an extreme and rare measure for an agency to ban a large contractor for lack of performance and in the rare cases it has happened to large contractors have almost always had the ban lifted upon appeal to the GSA. In most cases where there has been a failure to deliver substantial or primary responsibility can be laid at the feet of the government agency.

uberman 5y ago

Yes, the project just ends and it will end sooner than expected under fixed bidding as the government will almost certainly demand non-contracted changes mid-project that in my experience can have dramatic costs. Most government projects are structured and paid for in phases and there is no assurance that phase 2 starts at the end of phase 1. No approval to proceed means the project just "ends when it ends".

stonemetal12 5y ago

They get a bad CPAR (Contractor Performance Assessment Rating) and are banned from government contracting in the future.

quxpar 5y ago

Yes, and the government learns a lesson.

cryptonector 5y ago

> What happens when a fixed-price project hits a delay? It varies. Sometimes the cost of imposing a penalty specified by the contract would be so destructive to the project, and the project delayed but finished would still be worth more than switching vendors (if that's what the penalty would imply, due to bankrupting the original vendor) that the penalty gets waived. Besides, what happens when a cost-plus project hits a delay? Answer: we pay more and more and more and the project is delayed more and more and more.