Client wants a performance guarantee 1

[SylvestreW]

I work as a consultant engineer. Our client has a problem with their building and we have proposed a solution. Detailed design & engineering will cost about $200K. The client wants a financial and letter guarantee i.e. that our solution will be effective or we don't get paid (either at all, or until it's fixed). Obviously we are confident but unless detailed engineering is done, we can't know for sure. In addition, our design will be a retro-fit into a building so again, there's unknowns.

This is a large scale project for us i.e. we can't afford the risk of failure, but then again, won't go forward without the guarantee.

What's others experience with this?

I don't want to over-design such that there's so much safety factor that I can't help but succeed since that'll be a poor design. My associate is thinking of a double or nothing approach i.e. the client pays 0 if it doesn't work but double the costs (400K) if it's successful.

I'm wondering if there's an option to get some kind of insurance rider that'll protect us, but I have no idea bout this.

Thanks for any feedback.

 

[JedClampett]

How about you get paid for your engineering with no mark-up and there's a pot of money, a "Perfomance Bond" deposited into a bank or held by a bonding company. If your design works, the performance bond is yours after five or whatever years. If it doesn't, the performance bond is used for corrective actions.

 

[Jimwahhh]

If it was me, if I had enough work I would walk away

If I needed the work, I wouldn't want my pay tied up in a bond for however long as I am struggling a bit anyway and I would do exactly what you are doing, some pay now, some pay at the completion of the project based on quantifiable tests first done internally but with an independent judge chosen to bring in if there are any disagreements or problems with the test.

Basically just lawyers galore though, every step of the way.

 

[mauricestoker]

Pmadson,

What you are describing has been put into use for decades, and is a growing business. Energy savings performance contracts (ESPC's)allow for paydown of intial fee, or use of A-E services in identifying and evaluating energy conservation measures. Payment is based on measurement and verification of energy/dollar savings. Some contracting offices prefer having a third party A-E identify and evaluate ECM's, then go to the ESPC contractor. Other offices prefer to pay for a baseline energy evaluation from the ESPC and then make an offering on an ESPC contract. I am not a big fan of ESPC, as it requires twice the paperwork, and conditions always change. M&V can be a real bear.

Another variation is the firm fixed price plus incentive (FFP PI). A basic fee is negotiated, an incentive is earned based on the evaluation factors put in the contract. I was a big fan of the FFP PI.

Not being a resource manager or contracting officer, I don't get to select the contract vehicle.