Fixed-price contract is the contract reimbursement method in which the price the contractor receives is established at the outset.
Fixed-Price Contract FAQs
A Fixed-Price Contract (also known as a “lump sum” or “fixed fee” contract) is an agreement between two parties in which the buyer agrees to purchase goods or services for a set price, regardless of the actual cost to produce them. The vendor assumes all risks associated with the completion of the project according to the agreed specifications and timeline.
Using a fixed-price contract can provide several advantages for both parties involved. It allows buyers to budget accurately and better plan for future projects, while vendors can be assured that they will receive their full payment regardless of how much they need to invest in the project. Additionally, it can also encourage vendors to complete the project as quickly and efficiently as possible in order to increase their profits.
A fixed-price contract should include all necessary information regarding the terms of the agreement, such as a description of the goods or services, payment schedule and amount, any discounts or incentives offered, the timeline for completion of work, any warranties or guarantees associated with delivery, and any other special provisions that relate to the specific project.
Fixed-price contracts are not always suitable for every situation; instead, alternative arrangements like time & materials contracts may be more appropriate. Fixed-price contracts are not recommended for projects with an uncertain scope or unknown risks, as the vendor might find themselves unable to complete the project without losing money.
Disputes between parties involved in a fixed-price contract can generally be resolved through negotiation and compromise, but if an agreement cannot be reached, either party can take legal action by filing a complaint in court. Additionally, arbitration services are also available to help settle disagreements without resorting to litigation.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
