Day Rate or Fixed Price: Which Protects You on Which Job

What is the actual difference?

A day rate charges for time and leaves the scope risk with you. A fixed price moves that risk to the contractor, who prices for carrying it. Neither is cheaper in general; each is cheaper on a different kind of job.

Scope risk is the chance that a job turns out larger than either party expected. On a day rate the customer absorbs it, because every extra hour is billed. On a fixed price the contractor absorbs it, because the figure is agreed before the extra hours appear — and a contractor absorbing a risk prices for the worst version of it.

That premium is the whole economics of the choice. Where the scope is genuinely unknown, the premium is large because the worst case is large. Where the scope is defined and the materials are listed, the premium is small because there is little left to go wrong.

When does a day rate protect me?

On investigation, where nobody can know how long it will take. A fixed price for unknowable work contains a premium covering the worst case, so you pay for a risk that usually does not happen.

Three kinds of work sit here. Fault-finding on a system with no obvious symptom. Opening up to establish what is behind a wall or under a floor before a specification exists. And remedial work on somebody else’s installation, where the extent of what was done wrong is not visible until it is exposed.

The reason a day rate wins on those is arithmetic rather than trust. A contractor pricing a two-to-eight-hour investigation as a fixed figure prices near eight hours, and the job usually takes three. The customer paying for time pays for three.

When is a fixed price better?

On a defined job with known materials — a bathroom, a cylinder swap, a run of pipework. The scope is established, so the premium is small and you are protected against the work overrunning.

A defined job has a written specification, a materials list and a known starting condition. Everything that could surprise the contractor has already been established, so the premium for carrying the remaining risk is small — and in exchange the customer is insulated from an overrun entirely.

A fixed price also makes two quotations comparable. Two day rates cannot be compared without knowing how many days each contractor intends to take, and that number is rarely stated. Two fixed prices for the same written specification are directly comparable.

Can a job be priced both ways?

Yes, and it is usually the right answer. Charge time for the diagnosis, then a fixed price for the repair once the scope is known. Two-stage pricing puts each half of the job on the structure that suits it.

Two-stage pricing removes the premium from the half that does not need it. The investigation runs on time because its length is genuinely unknown. The repair is then specified against what the investigation found, and quoted as a fixed figure the customer accepts or declines before any further work starts.

Rillwater prices the whole job as one fixed quotation agreed before an engineer travels, and re-quotes in writing before touching anything outside the description given on the call. Declining a quotation costs nothing, the visit included.

How do I stop a day rate running away?

Agree a review point in hours, not in outcomes, and put it in writing. At that point the contractor reports what is known and either continues or converts to a fixed price. A cap without a review is a deadline nobody owns.

1. Agree the number of hours at which the work pauses for a review, before anyone starts.
2. Put that number in writing, in the same message as the rate itself.
3. Require a report at the review point: what has been established, what has been eliminated, and what remains.
4. Decide at the review whether the work continues on time or converts to a fixed price for a now-known scope.

Hours work as a review trigger and outcomes do not. “Review at four hours” is a fact both parties can see on a clock. “Review when you have found it” places the trigger inside the work itself, which is exactly the thing nobody can predict.

What should the quotation itemise?

Five things: labour and its basis, materials, access and making good, exclusions, and the review point where a day rate converts. A single figure with no breakdown cannot be compared with anything, which is usually why it is a single figure.

• Labour and its basis. Time or fixed, and for a day rate, what a day is in hours.
• Materials. Listed by item, with whichever are provisional identified as provisional.
• Access and making good. What is opened, and who closes it back up.
• Exclusions. What the figure does not cover, written down rather than assumed.
• The review point. The hour at which a day rate pauses and converts, on any job priced for time.

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