Fixed-Price Contract and an 'Implied' Capacity Increase

Start with the contract's order of precedence and scope baseline. The performance specification states a throughput requirement of 1,200 parcels per hour; it does not state that six lanes are a minimum, and the baseline scope list names six lanes. The layout drawing is likely an illustration of a solution, not a warranty of future capacity. The client's 'always understood' argument is an interpretation and course-of-dealing claim, but the email came four months after award and there is no documented pre-award representation in the file. That makes it a change, not a clarification. The PM should not say yes or no in the meeting; respond that the request is being evaluated as a potential change and issue a written change proposal. Also check whether the contract contains a fitness-for-purpose or performance-guarantee clause that shifts design responsibility to Kestrel; if it does, the analysis changes. Preserve the baseline documents, the email, and all estimates. The judgment is to protect the contractual position while keeping the relationship workable.

Quantify: 700 h × $145 = $101,500 engineering; $85,000 hardware; direct total $186,500. Add schedule impact. The five weeks of float are a project contingency, not a client-owned resource; consuming them transfers risk to Kestrel, so the proposal should include either a time extension or a priced schedule-risk premium. Present three options. Option A: all six lanes before peak, price $186,500 plus premium, with a five-week time extension or accelerated delivery cost. Option B: four lanes before peak and two after, lower cost and lower schedule risk. Option C: a value-engineering alternative, such as changing induction layout or adding a recirculation loop, which may reach 1,800 without six new lanes. Give the client the performance and schedule consequences of each. Do not bury the estimate in a lump sum; show hours, rates, hardware, and assumptions. Make the proposal valid for 30 days and require written authorization before work starts. This turns an emotional argument into a commercial choice.

Handle the payment threat separately from the technical change. Check the milestone's acceptance criteria and the payment clause: a milestone is payable when its defined deliverables are accepted, not when the client is unhappy about a separate request. Reply in writing, factually, confirming progress against the milestone and stating that the additional lanes are being handled through the change process. Do not stop work on the milestone, and do not sign a waiver of claims to get paid. Escalate to the commercial manager and, if needed, legal counsel. Offer a without-prejudice meeting to discuss both the change and the milestone on a joint fact base. Keep language non-accusatory: 'We want to resolve both items.' If the client withholds payment improperly, follow the contract's dispute provisions, including notice and records. The judgment is to avoid trading a legitimate payment right for an undefined scope concession, while preserving the relationship. Document the threat and all responses.