Fixed-price contracts offer predictability – but only when scope, billing, and oversight stay tightly aligned.
On large-scale capital projects, even a well-written contract can start to drift if the schedule of values (SOV) isn’t monitored or if change orders begin to pile up. When a fixed-price contract starts resembling a cost-reimbursable one, the risks to budget and accountability rise rapidly.
The Discipline Behind a Well-Run SOV
Fixed-price contracts can be a successful model for capital projects, especially when the scope is well-defined and there has been a competitive bidding process with qualified general contractors. When the schedule of values (SOV) is aligned with real progress, everyone stays on track.
Fixed price is the riskiest when the original scope is not clear. In a rush to begin work, the owner and contractor can be misaligned on what is in or out of scope. An unclear scope leads to discussions about scope changes, change orders, schedule delays, and cost overruns. Both the owner and contractor can point at one another for the delays and overruns, but the root cause is the scope was not clear at the inception of the agreement.
However, as anyone in the construction industry knows, even the best-laid plans can shift.
That’s why experienced teams embed processes to monitor alignment and course-correct before costs and timelines are affected. A well-structured SOV supports that goal, aligning payments with actual progress and helping everyone stay on track. That’s the ideal scenario – but it requires discipline and visibility.
When Fixed-Price Certainty Begins to Slip: Five Warning Signs to Watch
Spotting early signs of misalignment can help project teams course-correct before issues escalate. Here are four signals that a fixed-price contract may be drifting off course:
- Unusually low bids: A contractor bidding more than 10% below others may plan to recoup through change orders.
- Constant contractor-driven changes: If the contractor is constantly proposing adjustments to the materials, design, etc., this may be an effort to increase costs (i.e., their profit).
- First-of-its-kind or unfamiliar projects: Unique builds introduce uncertainty and risk, making budget shifts more likely.
- Significant change orders early in the project: Early scope changes often lead to more investment, increasing the likelihood of cost overruns.
- Frequent or late-stage owner-driven changes: It’s not only the contractors driving change orders – owners can unintentionally introduce risk, too. When design changes are made midstream or cost assumptions don’t align with current market realities, the contract structure can begin to strain.
CASE STUDY:
We saw this play out in a hotel refurbishment project where the owner significantly altered key components of the project after work had started, from fixtures to glass type. These well-intentioned changes had ripple effects, causing significant delays and driving up costs.
Even with thoughtful planning, mid-project changes are inevitable. The key is recognizing when they start to impact scope, schedule, or budget—and acting quickly to keep things aligned.
When to Audit
A clear scope of work and a well-structured SOV are essential starting points. But even the most carefully planned contract can begin to drift, especially when fixed-price terms start to look and behave more like cost-reimbursable agreements.
That’s when a mid-project audit becomes a powerful tool for owners and procurement leaders.
These audits validate that billing aligns with actual progress, verify that charges are appropriately supported, and flag potential risks before they become costly problems. They’re especially effective once the project has reached a point of complexity, when changes have started to accumulate, or subcontractor activity is increasing.
Importantly, a mid-project audit is not a disruption to the construction. It’s a back-office function that runs in parallel with work on-site.
Of course, the success of the audit can hinge on the cooperation of the general contractor and the owner(s). Their ability to provide necessary documents promptly is key.
What a Mid-Project Audit Covers
While each audit varies based on the size and structure of the project, they generally focus on:
- Document verification – Ensuring invoices and change orders are supported by proper documentation
- Line-item analysis – Reviewing billed amounts against contract terms and the agreed-upon SOV
- Scope alignment – Confirming that the work performed matches the approved project scope
- Risk detection – Identifying errors, duplicative charges, or red flags in billing or cost categorization
Audits are an opportunity to regain visibility and course-correct, often resulting in cost recovery, stronger controls, and better owner-contractor alignment moving forward. But even with strong contractor/owner collaboration in place, oversight alone isn’t enough. The right tools can make it easier to prevent problems in the first place and surface them earlier when they do arise.
Prevention That Pays Off
There’s truth in the old adage: “An ounce of prevention is worth a pound of cure.”
Effective oversight, combined with the right tools, helps prevent issues before they arise. Mid-project audits identify potential risks, while construction management software provides real-time data to streamline tracking and improve accuracy. Together, they offer better control over costs and alignment with project scope.
But tools alone aren’t enough.
People and process still matter. The most effective technology is supported by trained teams who know how to use it – and when to flag early warning signs. Whether it’s an internal resource or an outside expert, the right support ensures your systems aren’t just in place but actually protecting your bottom line.
Keep Your (and Your Team’s) Eyes on the Prize
Fixed price contracts can save money and reduce stress – but only when scope is airtight, oversight is strong, and the bidding process is competitive. Without a robust bidding process, simply asking for a “fixed price” can leave you with a price that reflects what the contractor believes you’re willing to pay, rather than the actual cost of the work.
Once a project starts drifting toward cost-reimbursable territory, complexity increases. And when payments no longer align with real progress, owners risk paying for work that wasn’t completed – or wasn’t completed correctly.
Don’t ignore the early warning signs. Invest in a clear scope, solid documentation, and experienced partners to keep your project and budget on track. Staying proactive is what ultimately protects your bottom line – and your peace of mind.
Let’s Talk About Keeping Your Project On Track
With the right processes and tools in place, fixed-price projects can deliver precisely what they promise: cost certainty, accountability, and peace of mind.
If you’re planning a project – or starting to see signs of drift – reach out to our team to discuss how to catch contract risk before it takes over and keep your project confidently on track.
