What One Should Do in the Case of Cost Overrun

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Leadership

Recently, your project exceeded its estimate and the customer insisted that you and your organization absorb the extra costs. Is this fair?

It depends on the way your contract was written, but probably the customer is correct. Common sense would dictate that if you want to keep your customer as a customer you would not go out of your way to make him or her unhappy by charging for overrun. However, eating the cost yourself for fear of being sued is like doing the right thing for the wrong reason. The best way to handle this is to handle it ahead of time -- through the contract. The contract should stipulate who pays in the event of exceeding costs laid out in the projection -- and if it looks like the projection is too low, there should be a request for a contract amendment if such a clause is not stipulated initially. Contracts are the best way to navigate tricky waters like these, because money can quickly become a thorn in relationships.

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Therefore it is essential to have the details hammered out ahead of time.

As Anderson (2015) points out, "if it's not written into the contract, without an 'approved' change request for more money, you as the provider are going to be stuck doing the extra work to get the 'promised' job done, with no extra pay." It truly is as simple as that in the real world of business and business relationships. Likewise, Schwartz (2015) notes that when negotiating contracts, it is important to be aware of the rights that each party wants to hold onto. A business relationship is not one-sided and both parties want to benefit from the relationship -- thus, risk (such as overrun) should be considered by both parties before work commences. This way there are no surprises down the road if that risk actually turns out to be a reality. The contract will have already prepared both parties for this possibility......

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