Fixedprice

Fixed price refers to a pricing arrangement in which the buyer and seller agree on a set price for a defined scope of work or quantity of goods. The price does not change with actual costs incurred by the seller, provided the scope remains within the agreed boundaries. This model is common in procurement contracts, freelance projects, and product manufacturing.

Common forms include firm fixed price (FFP), where the price remains constant regardless of effort or cost, and fixed-price contracts with economic price adjustment, which allows adjustments for specified conditions such as inflation or commodity price changes. Fixed price contrasts with cost-plus or time-and-materials arrangements, where costs or rates may vary with actual expenses.

Advantages include price certainty for buyers, simpler budgeting, and reduced administrative overhead. Sellers assume performance risk and can realize savings if costs are lower than the bid. The model works best when requirements are well defined, the scope is stable, and the seller can manage costs effectively.

Disadvantages include reduced flexibility to accommodate changes, potential for disputes over scope and acceptance criteria, and the risk that a bid may be too low, undermining quality or profitability. If external conditions shift or requirements become unclear, negotiations or change orders can erode the advantage of a fixed price.

Best practices include a clearly written scope of work, explicit deliverables and acceptance criteria, defined milestones, appropriate change-management processes, and, where appropriate, mechanisms for economic price adjustment or incentive-based payments to align against outcomes.