Under what conditions can a vendor charge 'extra' under a fixed free agreement? Ill be honest im looking for help and advice. I have a fixed fee agreement and these extra costs keep popping up thay are unexpected and dont align with my understanding.
1. The vendor scoped out a certain ERP module stating we would not need it but would confirm during Discovery and left it as a key design decision. They now want to charge for the effort and Discovery sessions around that Key Design Decision. My argument was that they could not since they left it as a KDD. They can only charge for the implementation portion. Do I hae this wrong?
2. In the SOW we agree to 3 prototying phases. While under the fixed fee agreement, they want to charge for prototype adjustments if the effort is over 8 hours. There is nothing in the agreement that notes this or allows for this. Im having trouble understanding how this is allowed under fixed fee.
Looking for advice, opinions and research links.
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Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
I understand your frustration. Situations like this are quite common in fixed-fee contracts, especially in ERP implementations where discovery, design decisions and prototyping naturally involve some iteration. The key question is whether the additional work represents a change in scope or simply effort required to deliver what was already agreed.
Under a fixed-fee model, the vendor generally assumes the estimation risk for delivering the scope defined in the SOW. Additional charges are normally justified only in a few situations: when there is a formal change in scope, when the contract explicitly defines limits (for example a maximum number of iterations or hours), or when the client introduces new or altered requirements after approval.
Regarding the Key Design Decision during Discovery.
The fact that something is labeled a KDD does not by itself justify additional billing. If the vendor indicated that a module was likely unnecessary but left the decision to be confirmed during Discovery, then the work needed to reach that decision - analysis, workshops, validation - typically falls within the Discovery effort that was already included in the fixed fee.
Charging extra would only make sense if one of the following is true. Either the module was clearly excluded from the original scope and is now being added, which would constitute a scope change. Or the contract explicitly states that certain architectural analyses or design investigations are billed separately.
If the item was simply left open for confirmation, determining the answer is normally part of the design and discovery work the vendor accepted when agreeing to a fixed-fee engagement.
Regarding the prototype adjustments.
If the SOW defines three prototyping phases and does not specify limits on hours per iteration or per adjustment, the common interpretation is that the vendor accepted the effort required to produce and refine those prototypes until they meet the objectives of each phase.
A limit such as “8 hours per adjustment” would only be enforceable if it is explicitly stated in the contract. Introducing that limit during project execution is difficult to justify contractually if it was not part of the original agreement.
The key distinction here is between adjustments within scope and changes to requirements. Adjustments needed to meet already agreed requirements are typically included. If requirements change or expand after validation, then that becomes a scope change and it is reasonable to address it through a formal change request.
From a practical perspective, two steps usually help stabilize situations like this.
First, ask that any request for additional cost be submitted through a formal change request that clearly references the clause in the SOW that makes the work out of scope.
Second, if parts of the contract are ambiguous, it is worth clarifying with the vendor how design decisions, prototype adjustments and requirement changes will be handled going forward. This type of clarification protects both parties and helps prevent recurring disputes during delivery.
In simple terms, fixed fee does not mean that additional costs can never occur. It means they should arise only when there is a clearly demonstrated scope change or when the contract itself defines specific triggers or limits. Without one of those conditions, the additional effort normally remains within the risk assumed by the vendor. Saving Changes...
So you mention: “8 hours per adjustment” would only be enforceable if it is explicitly stated in the contract. Introducing that limit during project execution is difficult to justify contractually if it was not part of the original agreement.
Do you have any advice in how to force this issue. This is not an area where I find our legal team has advice as they do not understand the ins and outs of how project management methodology and how that would apply in this situation. Saving Changes...
Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
What usually works in situations like this is not trying to “win the argument”, but shifting the conversation back to the contract and the project governance mechanisms that both parties agreed to follow.
In fixed-fee engagements, the practical way to address this is through formal scope governance, not informal discussions about effort.
A few steps tend to be effective.
1. Require a formal change request for any additional cost If the vendor believes the work exceeds the fixed fee, ask them to submit a formal change request. That request should clearly state: • What work is considered out of scope • Which clause in the SOW defines it as out of scope • The impact on cost and schedule
This shifts the burden of justification back to the vendor. If they cannot point to a clause in the SOW or contract that defines the limit (such as the 8-hour rule), it becomes difficult to justify the charge.
In contract management, additional billing normally requires a clear contractual trigger.
Without a contractual trigger, additional billing is usually weak from a governance perspective.
2. Separate “effort” from “scope”
Vendors often argue from effort.
Contracts operate on scope.
A useful way to frame the discussion is:
“Please explain which part of the agreed scope has changed.”
If the requirement, objective, or deliverable has not changed, then the discussion is about estimation error or delivery effort, which typically remains the vendor’s responsibility under a fixed-fee model.
One of the defining characteristics of a fixed-fee agreement is that estimation risk for delivering the defined scope is transferred to the vendor.
3. Use the project governance structure
Most ERP programs include a steering committee or escalation path.
If the delivery team keeps introducing informal charges, bring the issue to the governance forum and ask for a contract interpretation decision.
When raised at governance level, vendors usually become more disciplined because the discussion moves from delivery pressure to contractual accountability.
4. Document scope confirmations
For items like the Key Design Decision, it helps to record the interpretation explicitly.
For example:
“Confirmation of whether the module is required is part of Discovery and therefore included in the fixed-fee scope. Only implementation of the module, if required, would constitute a scope change.”
Once documented in project minutes or decision logs, it becomes much harder to reopen the discussion later.
5. Stabilize expectations going forward
If the contract is ambiguous, it is worth agreeing with the vendor on simple operational rules for the rest of the project.
For example: • Design decisions are included in Discovery • Prototype refinement within the defined phases is included • Only requirement changes trigger change requests
This protects both sides and prevents repeated disputes.
In short, the key is not trying to “force” the issue personally.
The leverage comes from process discipline: contract clause → change request → governance review.
Once the discussion is framed that way, the conversation usually becomes much clearer. Saving Changes...
Sergio Luis ConteHelping to create solutions for everyone| Worldwide based OrganizationsBuenos Aires, Argentina
The key thing to understand what are the risk at the begining of a project is Barry Bohem´s Cone of Uncertainty. Project scope is determined by Product scope because you are hired to create a solution (it is equal to product + project). If read carefully the Cone of Uncertainty you will have all needed to create SOWs or similar adding alternatives to cover fixed price. No matter that this type of situations happend and the only thing to do is to negotiate with the information that demostrate that deviations were because the customer instead of the provider. But the project manager is not accountable to negotiate. Other roles like the seller of the project or the delivery lead or the role that is the comercial point of contact with the client are accountable because they have the information needed to do that. About negotiation there is a lot to write. Saving Changes...
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Tiffany, in a pure fixed-fee contract, the vendor can usually charge extra only under the following circumstances:
1) Scope changes and there is a formal change request 2) The client requests additional work not included in the SOW 3) The client causes delays or rework, 4) The contract explicitly allows additional charges (e.g., assumptions, caps, or out-of-scope items). If none of those are written into the agreement, vendors generally cannot unilaterally add fees.
In the examples you mentioned:
1) Leaving something as a Key Design Decision (KDD) typically means the final decision will be made during discovery. However, it doesn’t automatically determine who bears the cost of the analysis. If discovery activities were included in the fixed-fee scope, the evaluation effort is usually covered, however, if resolving the KDD results in additional functionality, modules, or architecture changes beyond the original scope, that implementation work could legitimately require a change order.
2) If the SOW includes three prototyping phases under a fixed fee, charging extra for adjustments beyond eight hours would normally require that limit to be explicitly stated in the contract or tied to a change-order process. Without that language, the vendor would generally need your approval through a formal scope change before billing additional time.
Practically, the best step is to ask the vendor to point to the exact clause in the SOW or MSA that authorizes the extra charges. If they cannot reference a clause, those costs are typically disputable under standard fixed-fee contracting practice.
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