Who Carries the Overrun
Somebody absorbs the cost when work takes longer than expected, and which side that is tells you more about the arrangement than the agreement does.
Reads as a businessReads as employmentCuts both waysDepends where you are
Four factors, and no total. Every bar is the same length: the side is the claim, the size is not. The distinction everything else in this collection rests on.
Somebody absorbs the cost when a piece of work takes longer than anybody expected. Which side that is tells you more about what the arrangement actually is than the document describing it does.
The commercial issue in “Who Carries the Overrun” is easier to resolve when scope, time and approval records can be checked by both parties. When reviewing hourly timesheet template for hourly timesheet template, use those records to reconcile delivery and invoicing, while keeping tax status and contractual remedies with the people responsible for them.
It is also the factor most often left undecided, which means it gets decided by whoever has the weaker position at the moment the overrun appears.
For another operational perspective on “Who Carries the Overrun”, consult Ramp business-finance articles. Compare it with the actual statement of work, jurisdiction and supplier relationship before adopting a general practice.
The three positions
Either the supplier carries it, or you carry it, or it is split by some rule agreed in advance.
A fixed price for a defined piece puts it on the supplier. An open-ended day rate puts it on you. A capped arrangement — these days, and beyond that we talk — splits it, and is the most common honest answer for work whose shape is genuinely uncertain.
Why it is read as a signal
Carrying the risk of your own estimate is close to the centre of what running a business means. Somebody who prices a job, gets it wrong and eats the difference is behaving as a business. Somebody who is simply paid for however long it takes is in a different position, whatever the invoice says.
Nobody decides anything on this factor alone. It is simply one of the few that is hard to argue about afterwards, because the money either moved or it did not.
Overrun is not the same as scope change
This is where most arguments actually sit. If the work took longer because the supplier underestimated it, that is overrun. If it took longer because you asked for something that was not in the description, that is scope change, and the supplier is right to expect to be paid for it.
The reason the distinction collapses in practice is that nobody wrote the description down, so there is no boundary to be inside or outside of.
What a small amount of advance agreement buys
A single sentence in the engagement — what happens if this runs past the estimate — removes most of it. The sentence can say anything the two of you agree:
Fixed, and the risk is ours. Or: estimated at six days, anything past eight we agree before it happens. Or: days as used, and we will both say so if the shape changes.
What matters is that somebody chose, rather than that the choice was left to whoever is more uncomfortable in the conversation.
The soft version that costs you the factor
A very common pattern: nominally fixed price, and when it overruns the buyer quietly pays more because the supplier is good and nobody wants a fight.
That is a reasonable thing to do once. Done routinely, it means the supplier never actually carries the risk, and the arrangement has moved without anybody recording that it moved. If you are going to absorb overruns as a matter of practice, it is more honest to price for days and say so.
The hard version that costs you the supplier
The opposite failure: holding a fixed price absolutely, including on the overruns that your own late decisions caused.
A supplier who is made to eat the cost of your indecision twice will price the third job to cover it, decline it, or do it badly and cheaply. None of those is a saving.
What to do when neither side can estimate
Buy a smaller piece. Two days to find out what the job is, with a written answer at the end, and then price the real work against that answer.
This is almost always available and almost never used, because it feels like a delay. It is the cheapest way to turn work that cannot be described into work that can, and it leaves both sides free to walk away before anybody has committed to a figure neither of them believes.
The figure to look at once a year
Across a year, how often did an overrun end up on your side? If the answer is always, you are buying days, whatever your paperwork says, and the rest of this collection should be read with that in mind.
If the answer is never, check why. Suppliers who absorb every overrun without complaint are either pricing a large margin for it, which you are paying for, or losing money, which does not continue.
What it looks like when it has gone wrong
The engagement is nominally fixed-price. The invoices are for days. Nobody can say when the original piece of work finished, and the estimate against which the overrun would be measured is in a document that was superseded by a conversation.
At that point there is no overrun, because there is nothing to overrun, and the question of who carries the risk has been answered by default in your direction. Noticing is most of the repair.
Answered either way
The overrun question is answered in every engagement, including the ones where nobody answers it. Answering it on purpose costs one sentence.