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Contracts & Pricing

Fixed-price Contract

A fixed-price contract sets a single agreed price for defined goods or services regardless of the supplier's actual costs to deliver them.

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Under a fixed-price contract the supplier bears the risk of cost overruns and keeps the benefit of any efficiencies, because the price does not change once agreed. This gives the buyer budget certainty and simplifies invoicing, which makes it well suited to well-defined requirements with stable specifications.

The trade-off is that suppliers price in a risk margin to cover uncertainty, and changes to scope require formal change orders that adjust the price. For requirements where scope is unclear or likely to evolve, a cost-plus or time and materials structure may share risk more fairly, so buyers choose the model to match how well the work can be specified.

Frequently asked questions

What is a fixed-price contract?
A fixed-price contract sets one agreed price for defined goods or services regardless of the supplier's actual costs, giving the buyer budget certainty while the supplier carries the cost risk.
When should you use a fixed-price contract?
Use it when the requirement is clearly defined and unlikely to change much, so the supplier can price accurately. For uncertain or evolving scope, cost-plus or time and materials may be fairer.

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