The Vendor-Customer Relationship Suffers
Contract negotiations can be contentious even in the best of times. Introduce lawyers on both sides of the negotiation and it can drag out ad-nauseum as each side battles for victory. Even strong, long-standing business relationships are tested during the contract negotiation process. This might be true for any contract – not just FFFS contracts. Typically once a contract is signed and the project starts, any negative affects on the relationship are repaired by the project team through effective, productive delivery. The focus of both organizations becomes on the project deliverables. As weeks and months go by, issues arising from contract negotiations are typically forgotten. The problem facing FFFS contracts is that each time scope is changed, the contract needs to be amended – once again kicking-off a round of negotiations and painstakingly detailed adjustments. Management focus often shifts away from the product and project and more onto vendor and contract management.

Vendor Objectives Conflict with Customer Objectives
This is the biggie in my opinion. Most managers I’ve spoken to both on the buyer and seller side have often never thought about it in these terms. Fixed-Fee, Fixed-Scope projects force vendors and customers to have conflicting objectives on a project. Your vendor is in the business of generating revenue and margin by delivering or staffing projects. Sales people are compensated based on the amount of business and margin they deliver. On an FFFS project, the revenue is fixed but the vendor’s internal cost is not. For example, if the contract is for $500K worth of scope, the vendor’s revenue on the project (unless the contract is amended later) is $500K regardless of the number of people or the duration of the project. In order to maximize projects, or margin, a vendor wants to utilize the minimal amount of resource in the shortest possible time. Therefor, the vendor’s goal is to deliver the least amount possible to fulfil the contract. The customer’s objective is obviously to have as much as possible delivered to the fulfil the contract. These two opposing positions have caused many a conflict on projects and is the primary reason why I believe that FFFS contracts are the poorest option for the customer – why would you get in business with a partner or vendor whose objectives conflict with your own?

<<– The Truth About Fixed-Fee, Fixed-Scope Contracts – Part I

Pages: 1 2