title-wind

Exclusive Articles

From time and materials to lump sum: when the risk moves to operations

Published in: Wind, Talking Point, Exclusive Articles

From time and materials to lump sum: when the risk moves to operations image

As wind service contracts move from time and materials to lump sum agreements, the responsibility for managing costs and efficiency increasingly falls on service providers. Delivering the work is only part of the challenge. Providers also need to know how progress, hours and scope compare with the original plan. Reliable operational information can make the difference between identifying a problem early and discovering it when there is little time to act.

When a service contract moves from time and materials (T&M) to lump sum, the conversation usually starts with price: rates, margins, contingencies and payment milestones. It is natural to treat the shift as a commercial event, something for sales and contracts to settle before the project moves on.

The consequences become clear once work begins. Moving to lump sum changes how a project needs to be managed and delivered.

Who carries the risk

Under T&M, much of the time-related risk sits with the client. If a task takes longer than planned, the hours are logged and invoiced. The service provider’s responsibility is to mobilise the right people with the right skills at the right time and document the work properly.

Under a lump sum model, a significantly larger share of the efficiency risk moves to the service provider. The price is fixed; the hours are not. Every hour above plan puts pressure on the margin.

Profitability is no longer primarily about having the right people onsite. It also depends on how efficiently they complete the work within the hours allowed by the contract. The question is no longer simply ‘do we have the people?’ but ‘are we progressing at the pace the price assumes?’

 Download full article 

More from across PES