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Here is the scenario: You are the PM of a new T&M contract that has a $800,000 budget at completion (BAC) and a price of $1,000,000 and a one-year period of performance (POP). Scope is fluid, consistent with a T&M-type contract.

Approximately 30% in the POP, about three and half months in duration, you are overrunning your revenue and underrunning your costs, producing a 28% margin at that time and a 30% margin estimated at completion. At the current burn rate, you are projecting that you will hit the $1,000,000 funding level early, at the 80% mark of the period of performance.

So with two and half months remaining for which you will not have any more available funds to bill the client, and with the additional 10% in margin that you are accruing, and with fluid scope, what would be your course of action with the client?

If the client was private sector?

If the client was public sector?

I think, in reality, there is a canonical answer to this question but, as well, there are likely many different practices out there to handle this type of scenario. I am hoping this generates a few common practices out there.

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    One would ask for additional appropriations, cut scope, or eat the cost in the hope it pays off in future business. The rest is contracts and politics. I know you know these things, so I'm not sure that I understand the real underlying question that you're asking. – Todd A. Jacobs Sep 17 '18 at 23:16
  • Except for the third option in the public sector, these are sort of canned responses. I'm looking for how people approach their clients. How they talk to the client who is treating the t and m like a ffp. – David Espina Sep 18 '18 at 9:48
  • I would say: in private sector it‘s basically about generating a change request out of this doing claim management, in public sector it‘s about long term customer relationship and maybe generating additional contracts by demonstrating additional value. – Tob Nov 16 '18 at 22:38
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What would be your course of action with the client? Ans : 1) Share the current status with client 2) Revisit the project plan and re-prioritize the scope. 3) Based on the updated scope realign the resources. 4) Motivate the team to work towards minimal rework, maximum productivity. 5) Since your working in T&M anything which is not a part of SOW or MSA - should be treated as a CR.

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The key to managing overruns of cost projections is Managing Client Expectations, in both the private and public sector. You have to have a trusting relationship with your client. A relationship cannot work if it is win-lose. It should be win-win-win, for the client, the business, and the employees.

You mention the scope is fluid. So it is likely that both the development is taking longer than estimated and the client is asking for things more than originally projected. Have the client prioritize all features in a backlog. Then draw a line through the list at the point where the budget runs out. They can add anything to scope they want, but the lowest priority drops off.

An honest conversation with the client, "we are in this together, we are both trying to solve your need" approach works well. They realize that you have communicated progress to them all along. Work together to simplify the scope to fit the budget, or maybe they can extend the project into next fiscal year's funding.

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