Fixed-Price Supplier and a Known Risk

EMV of the permit risk = 0.25 × $400,000 = $100,000. The expediter costs $60,000 with high confidence, so the expected net benefit of expediting is about $40,000 compared with doing nothing, before considering schedule and reputational effects. On pure EMV, expedite. But check the assumptions: is the $400,000 impact the full business case, including delay penalties and lost revenue? Is the 25% probability still valid after discovery? If expediting does not eliminate the risk, compare $60,000 against the residual EMV. Also consider response strategy: this is mitigation-reducing probability-rather than avoidance or transfer; a permit delay may be insurable or contractually shared, but that is unlikely. Fund the expediter from the contingency reserve because it addresses an identified risk, not from management reserve. Document the decision, update the risk register, and assign an owner to track the permit.

First read the contract, not the claim. The statement of work assumes clean legacy data; the buyer gave no data-quality warranty; discovery found 20% defective records. That supports the supplier's position that cleansing is outside the fixed price-unless the SOW also made the supplier responsible for data validation or the buyer disclosed the sample data. Treat it as a change, not a failure: request a detailed breakdown of the $180,000, compare it with independent estimates, and negotiate scope (for example, buyer cleanses and supplier validates, or cleanse only records needed for migration). Do not simply pay or refuse. Issue a formal change order if the work is authorized, with schedule and cost impact, and update the contract's scope baseline. Also separate this from the three-week delay: determine whether the delay is supplier-caused, buyer-caused by data, or shared. Documenting the causal link protects both the claim analysis and any liquidated-damages decision.

Liquidated damages are a contractual remedy, not a management tool. Before invoking them, establish the cause of the three-week delay. If it is supplier-caused and the contract notice provisions were followed, the buyer is entitled to $5,000 per day up to 10% of contract value, or $120,000, but withholding payment can damage the relationship and delay further. If the delay is caused by buyer data or the permit, liquidated damages may not apply. The project manager should send a contractual notice, document daily, and separate the delay analysis from the commercial negotiation. Reserves: the $90,000 contingency is for identified risks such as the permit; the $120,000 management reserve is for unidentified risks and should not be used to pay a known scope change. If the $180,000 claim is valid, it needs a change order and potentially additional funding, not a reserve raid. Escalate the commercial decision to the procurement or contract owner.