Time and Materials with Fixed Scope and a Cost Ceiling

Sometimes I call this, “heads I win, tails you lose.” Any outcome that does exactly use all the budget results in less profit for the supplier.

Desired Benefit: Cap the risk of the customer, offer the possibility of cost savings (though not providing much incentive to either party to do so).

Structure: Same as Fixed price, Fixed scope, except if the vendor gets finished early the project costs less because only actual effort is invoiced.

Scope and Decision-Making: Same as Fixed Price, Fixed Scope.

Risks: This appears to represent the ‘best of both worlds’ from the customer’s point of view. If it requires less effort than expected, it costs less. But once the cost ceiling has been achieved, it behaves like a fixed price project.

Relationship: Dependent. From the supplier’s point of view, the goal is to hit the cost ceiling exactly. There is no incentive for the supplier to deliver below the maximum budgeted cost. The customer has probably treated the project internally as a fixed price project, and so has little or no incentive to renounce scope to save money.