Discuss the financial consequences to Polanski, Moreland, and LaPage. What should Polanski have done that could have altered the consequences? How does the choice of contract type depend on risks involved?

LaPage Power Company needed to upgrade the fire extinguishing system for the control room of a nuclear power plant. It selected Polanski Developers Company because Polanski was the only contractor willing to do the work for a fixed-price contract. Polanski’s $11 million price was based on its $9.5 million estimated cost for work and materials and a fee of $1.5 million. Polanski managers felt the fee was large enough to provide ample profit and absorb any unforeseen work difficulties.
The upgrade would require interfacing with many plant safety systems, some dating back to when the plant opened in 1985 and others that had been upgraded many times since.
The interfaces with other systems would make the upgrade complex and challenging. Polanski anticipated this and, to reduce the risk of a cost overrun, contracted with Moreland Systems, a company with substantial experience in nuclear power plants. Moreland would be responsible for virtually all of the actual system design and installation. Said Billy Chester, Moreland’s project manager, “You never know what you’ll find in these kinds of projects.” He told Polanski that Moreland would take on the job, but on a cost-plus basis only. The CPFF contract specified a target price of $10 million using Polanski’s $9.5 million cost estimate and a fee of $500,000. Polanski agreed.
When the project was completed—having encountered several unanticipated problems—
Moreland’s bill was $14.5 million. The CPFF contract had specified periodic audits of Moreland’s costs, but none were ever done.