To offset this flaw in the percent-cost approach, the fixed-fee formula was developed. In
this case, a fixed amount of fee is paid regardless of the fluctuation of the reimbursable cost
component. This is usually established as a percentage of an originally estimated total cost
figure. This form is commonly used on large multiyear industrial plant projects. If the
projected cost of the plant is $500 million, a fixed fee of 1% of that figure is specified and
does not change due to variation from the original estimated cost. Therefore, the contractor’s
fee is fixed at $5 million. This form gives the contractor an incentive to get the job done as
quickly as possible to recover his or her fee over the shortest time frame. Because of the
desire to move the job as quickly as possible, however, the contractor may tend to use
expensive reimbursable materials and methods to expedite completion of the project.