How do you progress a cost constrained or fixed price contract schedule in Primavera P6 Professional? Let’s take a look.
Fixed price projects are common in the contracting world. They are more favorable to the customer, because the contractor bears the burden for any cost overruns. Unlike a cost plus contract the budget in the fixed price contract is set. So the subcontractor will not receive any more money than what was originally agreed. Primavera P6 Professional has settings that help make progressing a fixed price contract schedule an efficient process.
This article explains how to progress a fixed price contract schedule in Primavera P6 Professional.
In Figure 1 we have our demonstration project.
This is a piping repair and improvement project. The work is considered straightforward so the customer and contractor have agreed to a fixed price contract. This demonstration updates the fixed price contract schedule using the Units Percent Complete type.
The percent complete type determines how Primavera P6 measures activity progress. The Units Percent Complete type is more accurate for multiple-resourced schedules that have non-uniform and/or differing burn rates. Observe that all activities, Figure 1, are assigned the Units Percent Complete type.
It is also most important, as displayed in Figure 1, to set the duration type to fixed duration and units. This freezes both the activity durations and costs. All activities except milestones are assigned the ‘Fixed Duration and Units’ duration type, Figure 1. You also want to set the calculations, Figure 2, to ‘subtract actual from at completion’.
The at completion value is fixed and the remaining cost computed by subtracting the actual cost from the at completion cost.
In Figure 3 we progress the schedule.
The drain piping system and remove damaged piping proceed according to plan, so no issues here. The install piping & coupling activity, however, requires more days than planned. After week one the install piping & coupling activity has only two days progress.
Additionally, the common laborer worked not the planned 8-hour days, but two 10-hour days. Originally, the common laborer was scheduled to work three 8-hour days. But look what happens when we enter the 20-hour actual for the common laborer, Figure 4.
The remaining units decreases from 8-hours to 4-hours. The common laborer therefore has only a half day’s work left on Monday to complete the install piping & couplings activity.
The pipe fitter worked the same hours as the common laborer, so we enter the pipe fitter actuals as displayed in Figure 5.
It is also interesting to observe the remaining units of the pipe and couplings materials go to zero after entering their actuals. In Figure 6 we move the data date forward one week and recalculate the schedule.
The units % 83.33% value computes from the actual $2,980 divided by the At Complete $3,576.
So after progressing the project one week the budgeted labor cost equals the at completion labor cost, which is what we want for a fixed price contract. As we continue to progress the schedule the remaining labor units compute from the at completion labor units minus the actual labor units. The at completion labor cost will remain fixed until the remaining labor cost goes to zero. At that juncture the at completion labor cost will increase.
To properly progress a fixed price contract schedule, it is important to set the duration type of all non-milestone activities to fixed duration and units. You also must set the calculations to subtract actual from at completion.
If you do not have this setting the remaining units remains fixed and the at completion cost increases, which is not your intention. In a fixed price contract you want the ‘At Completion’ cost fixed and the remaining cost to compute from the at completion cost minus the actuals.