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Fixed price or cost-plus for an armoured vehicle programme in Poland

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

A European defence company is negotiating a programme to build armoured vehicles for Poland and reports in EUR. It estimates the programme will cost EUR 400 million. The ministry offers two contracts: a fixed price of EUR 440 million, or cost-plus with a fixed fee of 7 percent of the estimated cost. The company thinks there is a real chance that costs run 15 percent over the estimate, because some suppliers are new. What profit does each contract give if costs are on estimate and if they overrun, and what does the ministry pay under cost-plus with the overrun? (Figures are illustrative.)

2. Answers to clarifying questions

This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.

3. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

Profit = what the company is paid minus what it costs
- Fixed price: profit = price minus actual cost
- Cost-plus: profit = the fee; the government pays actual cost plus the fee
- Compare both in the base case and the overrun case

4. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Fixed price, on estimate
What a strong candidate does: EUR 440 million minus EUR 400 million of cost.
Fixed-price profit on estimate (EUR millions): 440 - 400 = 40
Step 2: Cost with a 15 percent overrun
What a strong candidate does: EUR 400 million times 1.15.
Cost after the overrun (EUR millions): 400 × 1.15 = 460
Step 3: Fixed price, with the overrun
What a strong candidate does: The price stays at EUR 440 million, so the company loses money.
Fixed-price profit after the overrun (EUR millions): 440 - 400 × 1.15 = -20
Step 4: Cost-plus fee
What a strong candidate does: 7 percent of the EUR 400 million estimate, the same whatever happens to cost.
Cost-plus fee (EUR millions): 400 × 0.07 = 28
Step 5: What the ministry pays under cost-plus with the overrun
What a strong candidate does: Actual cost of EUR 460 million plus the EUR 28 million fee.
Ministry's bill under cost-plus with the overrun (EUR millions): 400 × 1.15 + 28 = 488

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

The company should prefer cost-plus, or ask for an incentive contract, unless it can lock in its supplier prices, because a fixed price earns EUR 40 million on estimate but loses EUR 20 million if costs overrun by 15 percent. First, the cost-plus fee of EUR 28 million is lower than the fixed-price profit on estimate, but it is safe. Second, the ministry faces the mirror image: under cost-plus it would pay EUR 488 million if costs overrun, against EUR 440 million fixed, so it will push for a fixed price or a shared incentive. The risk is that insisting on cost-plus loses the competition to a rival willing to accept a fixed price. As a next step, get firm quotes from the new suppliers and propose an incentive contract that shares any overrun.

Risks a strong answer names: A rival may accept a fixed price and win; Inflation in steel, energy and wages can push costs above the estimate even without mistakes; Late delivery can bring penalties on top of the cost overrun.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.