For scope that is reasonably explicit, many customers choose to purchase services under a firm fixed price contract in order to remove cost risk. It is essentially transferring risk to the seller as a risk course of action. For this luxury, customers can typically pay a multiple somewhere between 10% to maybe as high as 50% than they would have paid under a different type of contract where cost risk is still borne by them.
Under this scenario, the seller now holds this risk. If they performed a proper probabilistic estimate on the work and conducted a thorough risk analysis, the seller would likely target and price more conservatively and capture in the price contingent dollars for unknowns.
How can work be bound such that there is a point where the seller's loss can be stopped? If the seller estimates between 12 and 25 cycles of work to produce the widget, most likley 15, and the seller conservatively targets and prices 18 cycles of work, would there be a way to include in the contract that anything above 20 cycles would require a change request?
If you had a stop loss for the seller, would it not be fair to have a stop loss for the buyer, e.g., if cycles only took 11, 12, or 13, the buyer gets a discount?
Or is it that, once a FFP is agreed upon, the seller has the risk no matter what and the only "stop loss" mitigators would be explicit finish criteria, firm buyer obligations, and a strong risk process?
Answer this question under the assumption that scope is under control and that changes to scope causes a change in both schedule and price; that the buyer's obligations are being met in full, meaning the increased cycles in work cannot be tied to something the buyer is or is not doing; and in an industry agnostic way. Thanks!