Are you aware of the hidden costs that could jeopardize your big supply & installation contract?

In high-value supply and installation contracts, hidden costs can quietly erode your margins, delay project timelines, and create financial stress. Many negotiators focus on the upfront numbers but do not anticipate the unforeseen expenses that creep in during execution.

In this blog, we’ll uncover 22 cost factors that could jeopardize contract negotiations —and how to manage them effectively.

1. Fixed vs. Variable Pricing – Ensure clear price structures related to each high-value Bill of Materials and installation, testing & commisioning costs and where necessary escalation clause.

2. Payment Milestones & Retention – Link payments to completion and retain a holdback for performance. Include contingency reserves to manage unforeseen expenses effectively.

3. Price Escalation & Adjustment – Address fluctuations in material costs, currency exchange rates, and inflation.

   
   
   
   

4. Breakdown of Costs – Ensure transparency in direct and indirect cost components, including logistics and freight costs such as transportation, handling, and customs clearance.

5. Approval Process for Cost Variations – Establish pre-approvals for changes beyond a certain threshold. This must be based on documented authority norms.

6. Liquidated Damages for Cost Overruns – Set penalties for exceeding the agreed targets while also accounting for project delay cost implications to determine financial responsibility for delays.

7. Change Order Pricing – Agree on cost formulas for project scope modifications, including specification changes in bill of materials and workmanship

8. Mobilization & Demobilization Costs – Clearly outline mobilisation/setup and demobilisation costs

9. Advance Payment Guarantees – Secure financial protection for upfront payments through Bank Guarantees defining the validity and cost of taking BG & extensions and changes.

   
   

   

   
   

10. Customs Duties & Import Taxes – Specify responsibility for imported materials and equipment costs and capture HSN codes and statutory custom duty rates with duty break up.

11. Procurement & Material Costs – Define line item rates for each Bill of material and negotiate which materials are client-supplied and state the permitted % wasteage allowance: For contractor-procured material, define the brands and specification/ quality standards

    
    

    

    
    

12. Third-Party Inspection Costs – Establish who bears costs for quality inspections. and testing

13. Insurance Cost Responsibility – Specify the sum insured for the project (including materials, equipment, and property, define risks & liability, and also cover marine risks for materials . Define who ( contractor or client) will bear premium costs and amendments in sum insured/extension period.

14. Warranty & Maintenance Cost Allocation – Negotiate warranty periods for supplies and defect liability periods for SITC, along with inclusions/exclusions

15. Labor Cost Adjustments – Set terms for handling wage increases or overtime expenses while considering project delays that may impact overall labor costs.

16. Performance Bonds & Financial Guarantees – Protect against contractor default risks by taking Performance bank gurantees clearly stating who will bear the costs of taking PBG and extensions/changes.

17. Bank Charges & Financial Fees – Define responsibility for establishing LCs, guarantees, and bonds and changes and how costs will be shared.

18. Equipment Leasing & Rental Terms – Allocate rental costs for temporary equipment, ensuring clarity on lease duration and usage responsibility.

19. Utility & Energy Costs During Installation – Clarify power, water, and fuel usage responsibility, rates, and who will bear costs and rate variations..

20. Dispute Resolution for Cost Claims – Establish fair mechanisms for cost-related disputes, jurisdictions and all charges like fees/charges of advocates and courts.

    
    

    

    
    

21. Final Settlement & Reconciliation Terms – Ensure proper reconciliation of accounts before project closure, considering any financial recovery for outstanding cost claims or unforeseen liabilities as also taking over all documents, manuals etc

22. Force Majeure & Cost Liabilities – Define financial responsibilities in case of unforeseen disruptions, with pre-agreed cost-sharing mechanisms to minimize disputes.