A Fixed-Fee Investigation Response Sliding Off Budget

Set the baseline. Budget at completion (BAC) = £180,000. Planned value at month six, using the phasing, is 40% + 25% = 65%, so PV = £117,000.

Actual cost is £133,200, i.e. 74% of the fee.

Earned value is 55% of £180,000 = £99,000, taking the project lead's estimate at face value.

Indices:

• Cost performance index = EV / AC = 99,000 / 133,200 ≈ 0.74. Every £1 of budget is buying about 74p of work.
• Schedule performance index = EV / PV = 55 / 65 ≈ 0.85. The engagement is behind the phased plan as well as over cost.
• Forecast cost at completion = BAC / CPI = 180,000 / 0.74 ≈ £242,000, a variance at completion of roughly £62,000.
• Remaining work at current efficiency = (£180,000 − £99,000) / 0.74 ≈ £109,000, against remaining budget of £46,800.

What you cannot conclude. The 55% is a judgement, not a measurement, and it is the single biggest driver of the forecast. Replace it with milestone-based evidence: documents reviewed against the population, witnesses prepared against the list, submissions drafted against the required sections. Also treat the cost figure as a floor, not a ceiling: 15% of review time sits in a generic code, which means the true cost of the review phase is understated and the phase mix is unreliable. Check that recorded time reflects actual hours rather than a standard day.

Conclusion for the partner: absorbing the overrun costs roughly £62,000 and probably more, before considering the third request. Ask what margin was built into the £180,000; if it was under 35%, absorption may make the engagement loss-making.

Separate the causes, because they carry different commercial arguments.

• Controllable: senior associates doing first-pass review, thin supervision, weak time coding, no interim cost review. The firm should own this.
• Scope change: the third request for information covers a period the client had told the firm was out of scope. If the client's own instruction on scope was wrong, or the regulator changed the ground, that is a variation and the strongest basis for a supplemental fee.
• Estimating error: underestimating the original scope is the firm's risk under a fixed fee and is not recoverable.

Options to put forward:

1. A written budget update to the client now, with a change note for the third request priced separately, and a revised forecast for the remaining four months.
2. A scope trade-off: full review of the new period, but technology-assisted sampling rather than linear review of the original population, with a stated consequence for the regulator submissions. This protects the client's cost and the firm's margin.
3. A staffing rebalance: a paralegal or a managed review provider for first-pass review, with senior associates on exceptions only.
4. A partial absorption: the firm absorbs the estimating error, the client pays for the variation. This is easier to defend and easier to explain than all-or-nothing.

The client conversation. Go now, not at month ten. A short written update: where the budget stands, why, what has changed, the options with costs, and what you recommend. Never present an overrun without options, and never let the first mention of cost be the invoice. Silent absorption looks generous but teaches the client that the fixed fee is soft, hides the data the firm needs for future pricing, and creates a dispute when the next variation is requested.

Check the engagement letter for the assumptions, exclusions and change-control clause before making any request. If none exist, that is the lesson to fix for the next matter.

For the remainder of this matter:

• An assumptions register listing what the fee covers and what it does not, agreed in writing with the client.
• A change control trigger: any new regulator request, new witness or new document population automatically produces a change note with cost and a decision, before work starts.
• Weekly time and cost reporting at phase level, with earned value recalculated against milestone evidence, not gut feel. Review at a 20-minute standing meeting with the project lead.
• A monthly one-page client budget report showing spent, committed and forecast, so there are no surprises.
• Clean time codes: replace the generic admin code with a defined list and chase any code above 5% of a phase.
• A risk log including the regulator's behaviour and the client's evidence quality, reviewed at each phase gate.

For the next fixed-fee pitch:

• Define scope in units the client recognises - number of witnesses, volume of documents, number of regulator rounds - with a stated rate for additional rounds.
• Add an explicit contingency line for variations rather than inflating the base fee invisibly, and state the pricing assumptions in the engagement letter.
• Model the staffing pyramid before quoting, not after month six. Senior-associate-heavy review was the structural cost driver here and was foreseeable.
• Include a phase-gate review: if the matter passes a gate with a CPI below 0.9, the relationship partner is notified automatically.
• Capture the actual cost data from this matter as a benchmark, so the next pitch is priced from evidence rather than optimism.