You are a project manager for new multi-million dollar building renovation for organization. Company requires maximizing space that they have and best approach is to do staggered build out to better maximize space in existing building. You feel that best approach was to negotiate with numerous contractors on fixed price contract. Different contractors discussed other contracts with you, mainly ones to address present market fluxuations in raw materials market. You ignore those other companies and settle on agreement with local company, who is eager to accept terms for fixed price contract.
You realize that few weeks into four month project that raw material has increased by 250%. Contractor meets with you to explain price increase for project. You have already committed fixed price to company and there is no contingency in budget. Contractor advises that he will go bankrupt if he is forced to complete project at this price and so contractor sends you notification that they are stopping work on project.
Word of work stoppage flies through the company and your boss calls you to his office for update. You describe what has occurred but he feels that you are in charge for permitting this to get to this point. You are told by your boss to work something out with contractor and to go into negotiation with good plan on how to mitigate costs.
Upon reflection of this circumstances, consider questions given below and how might this circumstances been different with different contract approach.
Explain the following questions.
•Do you think that contract type selected was incorrect?
•What type of abuses did you identify?
•What type of positive or negative incentive could have improved this condition?