Fixed-Fee Cancellation Cost Scenarios

When a fixed-fee project stops, the original full-project margin no longer describes the outcome. Some work has been completed, some costs are already incurred, and other payments may remain committed. The customer settlement and any refund depend on the actual arrangement. This worksheet accepts those terms as scenario inputs; it does not calculate a legally required cancellation fee or decide what either party owes.

Reconcile costs before modeling settlement

Assume a hypothetical project originally had a $12,000 fee and a $3,000 initial receipt. At the stopping date, $4,000 of delivery cost has been incurred, of which $3,500 has been paid and $500 remains unpaid. A separate future supplier commitment of $700 cannot be avoided under the entered scenario. Total cost included in the stopped-project model is therefore $4,700.

Scenario A assumes an additional $2,500 settlement receipt and no refund. Scenario B assumes a $1,000 refund and no further receipt. For this illustration only, retained receipts equal final recognized project revenue. An actual accounting treatment may differ; the calculation is not a revenue-recognition rule. Both scenarios retain the same $4,700 cost boundary so the effect of the settlement assumption is visible.

Do not count unpaid costs twice

The remaining payments are $500 of already incurred cost plus the $700 future commitment, or $1,200. They are not $4,700 on top of the $3,500 already paid. In scenario A, total receipts of $5,500 less $3,500 already paid and $1,200 still to pay leave the same $800. The reconciliation connects the economic result with the completed cash schedule without duplicating the unpaid supplier bill.

Review deposits paid to suppliers, unused materials, and work that can be reused. A possible recovery should have a stated amount and date supported by the actual arrangement. Do not offset costs with the full original retail value of unfinished work simply because the business hopes to sell it later.

Separate this decision from the original quote

For a decision about additional closeout effort, compare the future receipts and costs that change from today onward. The $4,000 already incurred remains part of the project's total result, but it should not be presented as a new payment caused by a proposed closeout task. Preserve both views so a sensible next step is not mistaken for a profitable original project.

Document the stopping date, accepted work, remaining commitments, agreed settlement assumptions, and payment dates. Keep disputed amounts outside confirmed receipts until an evidence-based scenario supports them. The example excludes legal advice, tax consequences, and assumed replacement sales. Negative outcomes remain visible because cancellation can leave a real cost shortfall even after further delivery stops.

Method references: OpenStax: Relevant Information for Decision-Making. Accessed October 22, 2026. All dollar figures are hypothetical worked examples.